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UK a blueprint for newspapers to avoid - Independent News & Media
Niall Brady



NEWSPAPER moguls seem to spend their lives fretting about circulation wars, fickle advertisers and a drift by younger readers towards the internet when in need of a news fix.

But there was little sign of these worries in the numbers reported by Independent News & Media last week.

Advertising revenues were up by almost 11%, while tight cost control helped boost pretax profits by more than 40% to 272.5m.

Part of the secret lies in the group's expansion into growth markets such as South Africa and most recently India, where it owns a valuable stake in the world's most widely-read newspaper.

But IN&M has also managed to keep shifting newspapers back at home, with volumes across the group growing by 1.8% last year.

The trend does not tie in with Rupert Murdoch's apocalyptic vision of a wired-up world where the internet has largely eclipsed the printed word.

"I don't buy the argument that newspapers are for the scrap heap, " says Gavin O'Reilly, chief operating officer at IN&M. "People tend to use the internet mainly for email and entertainment.

There's very little consumption of news and media online, except when you get a major catastrophe such as the London bombings and people want to know immediately what's going on."

O'Reilly does concede that the internet is having a big impact on one major revenue stream: classified advertising. "Classifieds are slightly more complex because the internet is the perfect vehicle if you're looking for a new house, car or job, " he says.

This is why IN&M launched LoadzaJobs. ie last autumn, as the first of a series of internet portals aimed at classified advertisers.

The development does not spell the end of the property and motoring supplements that fall out of most newspapers according to O'Reilly.

"At any given time the majority of people are not in the market for houses, jobs or cars but this doesn't mean they've no interest in how much the house up the street is selling for, " he says. "You need to make a distinction between the passive and active classified user."

So house hunters will scour the internet to find their next homes while the rest of us will continue to reach for a newspaper when indulging in a bit of property porn.

According to O'Reilly, too many media pundits never bother to look beyond the UK when framing doom-laden predictions. "The UK is not a reliable proxy for the worldwide market. It's a dysfunctional market where newspapers have been allowed to become commodities by once-off promotions."

Rather than a vision of the future, he believes the UK provides a blueprint for mistakes to avoid. "We are able to show increases in circulation in places where we can invest in the brand rather than chasing short-term circulation spikes, " he says. "Globally newspaper volumes are growing, with the trend obviously skewed towards developing markets. That's the direction of our capital deployment strategy."

Despite the gloom, IN&M is committed to its investment in the London Independent, he says, although it has stopped predicting when the newspaper will turn a profit.

Sales have improved considerably since the switch to a compact format in late 2003, a decision since copied by most of the competition. The current circulation of almost 270,000 copies a day is higher than at any time since IN&M bought the title. The Independent on Sunday got a similar boost when it went compact in October.

O'Reilly concedes it will be a hard slog. "An improvement will require an advertising recovery in the UK, " he says.

"I'm blue in the face of people suggesting light at the end of the tunnel. At some stage things will turn and, when they do, we'll be there to get the benefits."

The good news is that cover prices are holding firm, with the Guardian following the Indy's lead in setting the price at 70p. The UK newspaper, often described as the O'Reilly family's calling card in London, has spin-off benefits for the rest of the group, with its big name journalists such as Robert Fisk popping up in other group titles from the Irish Independent to the New Zealand Herald and The Star in South Africa.

The price wars and DVD giveaways that have caused so much damage in the UK market now threaten to infect IN&M's home market with the arrival of the Daily Mail, which sells for 30c, at least for now, compared with 1.60 for the Irish Independent.

O'Reilly says the new arrival has only succeeded in hurting sales of other UK titles in Ireland. He also says that the new Dublin freesheets, including IN&M's Herald AM, have not damaged the paid-for market.

"There are 180,000 extra newspapers circulating today with no loss of sales for the Independent, " he says. "It's a growing universe."

Despite the drift to compact format in the UK, IN&M's flagship title in Ireland will continue to appear in both broadsheet and compact formats as long as this is what readers want, he says.

"There's absolutely no cost penalty involved in running the compact and broadsheet side by side. Our job is to cater for what the market wants and right now that breaks down 50-50 between the two formats."

Despite the strong results, IN&M's shares shed 10c to 2.60 last week. Given that they traded as low as 2.25 in early December, investors are unlikely to be too unhappy.

"The markets seemed to be waiting for mega earnings upgrades, " says O'Reilly. "I find this curious because we're the only media company in Europe that's showing growth."




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