Why Johnston Press is right to consider a merger
Why Johnston Press is right to consider a merger
This week I thought we’d take a look at a subject we’ve not covered before – the regional press.

Time was, 20 or 30 years ago, that publishing a local or regional paper was practically a licence to print money. In the days before the internet, or so-called hyper-local bloggers, local papers were the best way (and sometimes the only way) to find out what was happening in the local community, locate a plumber or tradesman, learn about upcoming events, find a property, look for a job and buy or sell items.

Anyone above a certain age will recall how fat those local papers were, swollen with vast amounts of classified advertising. Many publishers earned margins of 30 per cent or even more. Journalists on the nationals were often sniffy about the stories to be found in local papers – “Newport Man Grows Huge Tomato” is one I recall particularly fondly – but the publishers didn’t care. Why should they? They were swimming in cash from advertising revenues. Local papers also provided countless journalists with their first career opportunity and on-the-job training, plus they were read assiduously by the communities they served.

So while the nationals (and these days the likes of Buzzfeed) enjoyed a giggle at their expense, the advertisers loved them.

That all changed with the arrival of the ‘net in the late 1990s. It’s arguable that of all forms of media, the regional press was the one most disrupted by digital. Classified and other revenues plummeted, and readers could find a good deal of editorial content online.

Many publishers then became locked into a vicious circle of cost-cutting, budget cuts and desperate measures – going free, changing frequency, blaming the BBC and so on – in an effort to maintain those once-fat margins. But the writing was on the wall and the fact was that the days of a 20 or 30 per cent return were gone forever.

A few publishers, most notably Sir Ray Tindle and his stable of 220 or so titles (plus some local radio stations), have managed to create a sustainable business and prosper in the digital age, but Sir Ray’s company is family-owned and hasn’t got demanding shareholders to worry about.

Sir Ray – who founded his empire back in 1946 when he set up The Balham & Tooting Gazette with £300 of demob money – has also always run his papers lean and is used to thin margins. Meagre margins are of course not very attractive for the stock market.

For a long time one of the most profitable regional publishers was the venerable Johnston Press, the Edinburgh-based publisher of The Scotsman, the Yorkshire Post and the Edinburgh Evening News among 200 others. In recent years it has been bedevilled by the usual regional publisher woes – including a bitter journalists’ strike in 2011 – but four years ago, following the appointment of 'digital native' Ashley Highfield as CEO, the ship was steadied, efficiencies gained and debt reduced.

Of course, structural problems remain as copy sales continue to fall. Earlier this month Johnston saw its share price fall by 16 per cent after issuing a profit warning; operating profits fell 4.3 per cent to £27m in the first half to 3 July.

However there was slight improvement in ad sales: the publisher said the 9.5 per cent fall in ad revenues in May reduced to a decline of 7.7 per cent in July, and the debt mountain was further reduced. But overall, the picture was grim: Total ad revenues declined 5.1 per cent to £80.6m. Within that, print advertising fell 9.5 per cent to £64.1m. And the decline in copy sales seems to be accelerating.

These results reignited a debate among media-watchers about what the next step should be for Johnston. The most obvious answer would seem to be consolidation – merging perhaps with Trinity Mirror (Liverpool Echo, Manchester Evening News), Newsquest (Brighton Argus, Glasgow Herald) or Local World (Kent & Sussex Courier, Leicester Mercury), all of whom have publicly indicated an interest in merging with someone else in recent months.

A merger would – providing the competition authorities didn’t object – make good sense. There would be cost savings to be made and efficiencies to be gained in offices and infrastructure, and a case could be made for a more effective advertising sell across a range of titles. What needs to be avoided is too much cost-cutting, as many titles or groups are operating with a bare minimum of staff and, if numbers are pared too much, there’s a danger that standards will fall unacceptably.

The other thing to avoid is closing titles except when absolutely necessary. Many of our cities and big towns have two or three local papers, and while there will be a lot of duplication, readers tend to be – for all sorts of reasons – fiercely loyal to a particular title.

Newsquest is a particularly interesting potential partner for Johnston Press. Both are strong in Scotland and there are clear synergies. But a merger would have to be about efficiency and eliminating duplication – not about just crude cost cutting – and there is a difference between the two.

For example, there might be advantages in the Edinburgh-based Scotsman and Glasgow’s Herald sharing certain functions (advertising – especially that with a pan-Scottish focus – IT, HR, some aspects of circulation and some but certainly not all journalists) while maintaining their very different news teams and identities.

It’s often said that the future for newspapers, and local papers especially, is bleak, and the outlook is terminal. I’m not sure I agree. The success of a broad range of publications, from The Economist and The Week, through to Metro, the Evening Standard and Shortlist indicates that there are still possibilities in print.

But the future for the locals, if there is to be one, will be very different. Advertising will need to focus on local business – SMEs, retailers, restaurants and services – both online and in print; editorial will need to be very relevant, up to date and provide opinion, not just reporting. Perhaps the daily local paper will die out almost entirely outside of the very biggest cities (London, Birmingham, Manchester, Bristol, Glasgow, Cardiff, Edinburgh), with newsy content updated throughout the day online and a more analytical, lengthy approach taken at weekends. Added value features, great photography and the like to further entice buyers into the newsagents would be important.

Most of all there has to be a ruthless focus on two things: local content (for local people, as it were) – repurposing stuff from the nationals won’t work, readers want to read stuff about the places and people they know and live among; and quality journalism. If costs are to be cut, they must be in management and legacy services like HR, rather than journalism, design, sub-editing or advertising sales.

Someone I know runs a magazine publishing business. He specialises in buying failing trade and B2B titles from big publishers and turning them around. While he admits that none of his editors or journalists are super-wealthy, none of them are paid the rock-bottom wages a lot of journalists and editors have to suffer either. I have to say that all his mags are better (better content, better design, more advertising) after a few months of his company’s stewardship than they were before. And he manages to make a decent profit from them.

How does he do it? How do you manage to drive standards and profits up when the previous owner had failed? Unlike the big publishers, he doesn’t have expensive offices, large IT or HR departments or admin costs to worry about. Most of his employees are self-motivated, experienced journalists and ad sales people who want to work from home or space and manage their own time. Technology allows them to have virtual editorial conferences, swap files and so on. There is no need for expensive space in London, just a building in a small town in the South-East. Websites are built around simple CMS like Wordpress so can be updated easily by even the most technophobic journos. It all seems to work pretty well. I think there might be a model here – as there is with Sir Ray Tindle’s flourishing stable of hyper-local papers.

Mergers by themselves won’t save the local newspaper industry, but thoughtful consolidation, a commitment to quality long-term planning and the adoption of new ways of working, along with an acceptance that the old days of bounty are gone for good, will certainly bode well.
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