UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 699-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CULTURE, MEDIA AND SPORT COMMITTEE

 

 

THE FUTURE OF LOCAL AND REGIONAL MEDIA

 

 

Tuesday 16 June 2009

MS CLAIRE ENDERS and MR CHRISTOPHER THOMSON

MR JOHN FRY, MS CAROLYN McCALL OBE and MS SLY BAILEY

Evidence heard in Public Questions 1 - 69

 

 

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 16 June 2009

Members present

Mr John Whittingdale, in the Chair

Janet Anderson

Mr Nigel Evans

Alan Keen

Adam Price

Mr Adrian Sanders

Helen Southworth

________________

Memoranda submitted by Enders Analysis and DC Thomson & Co

 

Examination of Witnesses

 

Witnesses: Ms Claire Enders, Founder and Chief Executive, Enders Analysis; and Mr Christopher Thomson, Chief Executive, DC Thomson & Co, gave evidence.

 

Chairman: Good morning. This is the first session of the Committee's new inquiry into the future of local and regional media. It is taking place on what may or may not turn out to be an auspicious day for the media industry - we wait to see this afternoon. Perhaps I could welcome as our first witnesses Clair Enders of Enders Analysis and Christopher Thomson, Chief Executive of DC Thomson. Adrian Sanders is going to start.

Q1 Mr Sanders: Why do you think local and regional media are important?

Mr Thomson: We celebrate localness. The good things and the fascinating things that people do locally and their hopes and aspirations, we give voice to that. We celebrate them and we share their sorrows as well. Democracy starts, in my view, at the local level. After all, Parliament is elected through a constituency process. Newspapers are to an extent slightly different from other media because of the news element, which is absolutely not government backed or responsive. I think they are particularly important in terms of cohesiveness and in terms of communities. I think there are a number of reasons why the local press and the regional press are slightly unusual.

Ms Enders: I would like to add that, as we know, economic activity has to work at every level in the nation. The local media enhance local employment and local commerce. They also provide significant opportunities for the young who are doing relevant degrees; they have traditionally been a feeder route into professional journalism at higher levels in the national press; but, above all, local media, both here and elsewhere, are a countervailing force to local and regional corruption and crime, whether it is in local government or in commerce. Without that investigative force, as I think the creator of The Wire mentioned in relation to the decline of local press in America, you do not see bloggers down at the court room, and he predicted that the demise of local media in America would be a bonanza for local government corruption. Also, finally, people who live outside London want to have a sense of community and cohesion and want to have a sense that they are enfranchised and can participate.

Q2 Mr Sanders: How do you make distinctions between what is local and what is regional in different media?

Mr Thomson: That is an interesting question. Obviously we publish the Courier from Dundee but the Courier has several editions. We also publish the Aberdeen Press & Journal and the Evening Express and of course they have about seven or eight editions which cover different parts of the territory that we seek to serve. The Courier has four or five editions, in Fife, in Perth and so forth, so although the Courier I would regard as a local/regional newspaper, its editions are very local. There will be two editions in Fife.

Q3 Mr Sanders: Could that be a model for other titles in other parts of the country?

Mr Thomson: Most of the regional press would operate in that manner, so there is an overall regional newspaper centre with local editions.

Q4 Mr Sanders: By local editions do you mean separate editions? You do not mean local pages?

Mr Thomson: Largely local pages, but also local editions. Of course the core of the paper may well be the same for a number of areas. There will be common content but very specific content for the areas in question.

Q5 Mr Sanders: Are the challenges faced by local media different from regional media?

Mr Thomson: Local, regional and national are all on a continuum. Regional press have a lot of national content in them. Of course they cover Andy Murray and this sort of thing. Quite clearly it is not only covered here, but the regional press also have local elements. The local press, which I tend to regard as the weekly titles, have rather less regional or national content. Of course they are very much specialised in a particular time, even down to a particular village.

Ms Enders: The distinctions made from an advertising perspective are, once more, in terms of national and local. All these media carry both national, inherently regional or local advertising, but there is such a range. I mean among the local printed titles, there is a range going from a circulation of a couple of thousand up to 100,000 or more - indeed, in the case of the Sunday Post, it has circulation of about 400,000. There is a vast range. In radio there is also a vast range between community stations, which are inherently sort of micro-local, and regional networks, like the Heart network, and national stations of which there is a small number. Inherently one of the things that is interesting about the UK is that all the commercial media, when they were started by regulation, were focused on the local space. This was to distinguish them from the BBC, which has always been more of a sort of national media.

Q6 Mr Sanders: Some of those submitting evidence to this inquiry have painted a very dark picture of the future of local and regional media. How do you describe the situation?

Ms Enders: I sent through some slides which paint a picture, to both short term and long term, which is absolutely dire in the case of the local press, because if you were to look at slide 3 on sector and company revenues, Google is shooting up to the top there, and then Sky has an average cake of about 4%; for the BBC that is obviously the licence fee; the national press are slightly less affected so far, but obviously moving to ITV as well. The national media is really substantially less affected than the local press by the combination of structural factors and the recession. Page 4 provides our forecasts for local and regional newspaper advertising spend, which we are predicting will inherently suffer a decline of 52% from 2007-2013. That is a reduction in income of 1.3 billion. That includes classifieds, all forms of advertising in the local and regional press. On top of that, the local and regional press will, in our opinion, suffer an average 8% decline in circulation on top, so there is an additional revenue effect.

Q7 Mr Sanders: You have lumped in local and regional again and you keep saying "local and regional." I want to get a picture of whether it is worse for the local newspaper than it is for the regional newspaper, or is there no difference at all?

Ms Enders: I think there are distinctions based on micro-economic circumstances. For instance, I am sure Christopher will comment on the Aberdeen Press & Journal which is a very strong local paper in a relatively strong local economy. I think that is quite a shining star in the sector. Is that a local paper? That is in Aberdeen but it is read all over Angus and surrounding towns. I think the distinction you are aiming for is a bit of a difficult one. I would suspect from our analyses that the larger circulation papers can sustain more origination and can sustain more employment, and therefore they are inherently going to be stronger. There are also cases, for instance the Scotsman, where there have been steep declines in circulation, and, equally, at the micro level, the small, small circulation titles we would suspect have a threshold of viability which is much easier to go over, because if you fall from 5,000 to 3,000 to 2,000 circulation, that really impacts very, very heavily on the economics of supplying those papers. In 1,300 different titles, it is quite hard to generalise.

Mr Thomson: I think it is right across the board. We have seen getting on for 50% drops in advertising revenue already. To take Claire's figures, the figures in the regional press at one time were about 3 billion as a total for advertising revenue.

Ms Enders: Yes, in 2004.

Mr Thomson: That already came down to 2.5 billion in recent times and it is heading down to 1.3 billion. It is somewhere on the 1.7/1.8 billion line and heading south. I think we have had a micro-economy in Aberdeen because of the oil business there that has enabled us to hold up slightly better in our Aberdeen papers. In Dundee, it is not as good. We do not have an oil industry there. For some newspapers, particularly the local press, about 80% of their revenue comes from advertising, that is the local weeklies. In our business, we have more regional papers, and it is more like 60%. If you lose half your advertising revenue, you are effectively losing 30%-40% of your total revenue. That is like people having to take 30% or 40% salary cuts, to put it into context. It is massive. At the same time, this last year we have had a 20% increase in newsprint prices. The newsprint companies have to survive, of course, in their own way, although they have been making losses for years. We to some extent understand that. They do not like it, of course. The ink price that we use is based to an extent on the oil price. Recently oil has come back, but if oil starts to go through the roof again there is likely to be an impact on the ink price and you have what I would call a perfect storm. You have revenues collapsing on the advertising side, which is particularly hurting the local press. The regional press are slightly stronger, I think. I am not sure if that answers your question.

Ms Enders: I think the easiest distinction to make - and I am sorry, because you are pushing along on the regional distinction - is between local and national advertising. That is really related to long-term changes in the way that the economy works in this country. It is very similar to the US, but in simple terms local advertising is falling at twice the rate of the decline of national advertising. We are seeing national advertising declines in the US and the UK of about 15%. We are working on a piece of research that shows extraordinary similarities between the US and the UK in these phenomena. By comparison, local media are falling, in terms of the press anyway, at a rate of 30%. Local radio is falling in this country, as in the US, at a substantially lower rate, because those media tend to have large amounts of national advertising, so they work as local feeder networks. Basically, local/local - even in radio - both in the US and the UK is falling very fast, and that is really because local economies are imploding.

Q8 Mr Evans: Does this have anything to do with the recession or do you think it is likely to be more permanent?

Ms Elders: If you look at slide 2, you will see that the disconnect between the long-term correlation between GDP and total ad spend occurred in 2001, so we are already in year eight of a fundamental structural change in terms of the disconnect between economic activity and advertising. It will undoubtedly become more marked. If you want to understand the causality of this, it is partly related to inventory. There are massive amounts of overcapacity in TV, in newspapers, magazines, online. Rupert Murdoch referred to online as a medium in which inventory doubles every year, so this is a structural shift of enormous import. Obviously it is also related to other shifts in the economy. For instance, e-commerce is heading towards about 15% of total commerce in this country, and that favours online versus physical retail, which you are no doubt aware is shrinking as local economies implode. We do not believe that those physical means of retail will re-open. We are looking at fundamental structural shifts across the economy caused by technology, and those shifts systematically will disintermediate human capital, because that is what technology always does.

Q9 Mr Evans: It is a pretty gloomy picture that is being painted if you happen to be in the local newspaper business. If these figures carry on in the way that they are, we can expect local titles, regional titles, maybe even national titles to close.

Ms Elders: That is right.

Q10 Mr Evans: When we look at the increase in the amount of advertising that is going on the internet, a lot of these papers have internet presence. Is that going to save them?

Ms Elders: Absolutely not. The average income earned from a regional or local newspaper reader is about 100 a year, taking account of advertising and circulation. The average income earned on a website visitor is about 2 a year and probably falling. It is very simple why. On average, people who use these local websites are spending about five minutes a month on those websites. By comparison, people who read papers spend an average of 12 hours a month reading those papers, so it is a completely different kind of experience. Local websites do not substitute at all for the printed page. They just do not.

Mr Thomson: Our own websites, by their nature have to be complementary, otherwise you cannibalise your paper, but of course everybody else's website is substitutional. Effectively, we can only do our best to have a good service and provide for our readers, which currently of course has to be for free, as an add-on. Whatever we are doing is always complementary but any other website, which will advertise as well, is completely substitutional.

Q11 Mr Evans: You said what was happening in America is happening here roughly at the same rate and yet we have seen some historic titles fold in the United States of America. You mentioned at the beginning the importance of local and regional newspapers to the community, being the glue that bonds everything together so there is a sense of society. All this is going to go. Just as we have been campaigning to save local schools, local buses, local post offices, local pubs even, because these are all part of the iconic institutions that bring communities together, it looks as if the local newspaper is going to be next in line and you do not see any way out of this. You see papers folding. What famous titles do you think are going to close which are in danger at the moment?

Ms Elders: It would be inappropriate for me to comment on specific titles. We have already seen title closures and there are other witnesses who will no doubt illuminate you as to their businesses, but we are expecting that up to half of all the 1,300 titles will close some time in the next five years. Many titles are currently already running at losses and are being sustained by owners or operators/owners who see these titles as fitting within a portfolio approach. A lot of titles are already being sustained by the good graces of their owners and that may not last. There has been a significant capital markets crisis and a stock market crash, and that phenomenon on top of the recession has undoubtedly had a severe impact on the ability of companies to sustain loss-making activities.

Q12 Mr Evans: All this local news that is now going to be lost, you do not foresee an opening in the market somewhere. As you said, bloggers are not down at the court rooms. You do not see any commercial way that that is going to be replaced at all.

Ms Elders: No. It is not really possible to replace professional journalism which has been honed and trained. The people who work in the press are highly trained individuals, otherwise they would not still be there. You have to be able to do stories very quickly, you have to have an inquiring mind. I am not saying that all journalists are wonderful people but I am saying that there is a particular cast of mind. Let us not forget that the British nation produces probably more words per capita than any other nation. We are a very literate nation, so it is a calling that has attracted many very fine people. Those people may well, as indeed they already do, engage in blogging but they are going to have to make a living during the day, whatever it is - washing cars or whatever - and they will not be able to spend the time or be paid to spend the time to investigate local politics, or local issues which are of extraordinary interest. If you ever read the local press, you will see that much of what really matters to communities is about the interface between the population and the rulers; the local council or the national government or whatever. Collectively people in a local community feel more empowered if someone is advancing their cause. They expect that of the press.

Q13 Mr Evans: I do not want to turn you into the undertaker for half of Britain's local and regional press, but that is what you are being in what you have just said. You see no way of stopping this or turning it around?

Ms Elders: No. As you can see from slide 2 - you know, GDP is a great tanker - this is a fundamental structural shift. We are not going to come back. That will also affect television, because if you look at the TV slide on page 5 you will see that there too the decline will be quite acute. We do not expect a recovery, certainly within the foreseeable future, to the levels that we have seen in the 1990s. The British media spends a very large amount of its revenue on origination, whether that is production, radio programmes, wonderful stuff. As I am sure you are aware, many national newspapers already run at a loss - The Times, The Guardian, the Independent and so on - the local press also spends a very large amount of its income on origination, so we are going to see a decline of origination across the board and of course that will have enormous consequences for democracy.

Q14 Mr Evans: Do you think this is generational, that it is just young people now progressing towards new media, information technology, Bluetooth, blogging, twittering, goodness knows what, texting, and that they are the ones who are not buying the papers, reading the papers as much as they were, or do you think there is something else?

Mr Thomson: I would not want to give the impression that no-one is really buying the papers. We have never really expected, of course, lots of very young people to buy the regional press because you do not tend to be interested in the locality until you have a stake in the community. First time mums are aged 32 in London and 31 outside London, so it is not as if we expect lots of 18-year olds, much as we would like it, to be regular buyers at that age.

Ms Elders: No, I do not think that being deserted by the young is the problem. The main issue is with recruitment advertising and property advertising, but particularly recruitment advertising. The Government started to withdraw recruitment advertising from the local press in 2004 and that has been absolutely the most awful thing. The other thing that happened was that the Royal Mail suspended and eliminated distribution to homes. What I think is astonishing is the struggle people do make - elderly people in particular - to go out and get that paper. They are physically going in their cars or walking some distance to get that paper. The other point we mentioned in our submission is obviously significant changes in distribution. The supermarkets have taken a very significant part of the distribution in the sector and that invariably requires a car journey or something. With local newsagents closing, there is no doubt about that effort to get the paper. We think that about a quarter of the decline in the press is related to changes in physical distribution and the role of the supermarkets and edging out brands that do not play ball with them. Just going back to the young, there is, as we all know as parents, a pervasive move away from the printed word towards screen culture. This has been going on for the better part of 25 years. It has reached such a pass, however, that children's magazines have folded, book sales in this country declined by 20% in Q109, as they did indeed in the US, so we have a pervasive move away from printed paper, paid-for, long form. In the US there was this survey done by Pew, a very interesting think tank, which identified a profound political apathy among the young. When I was young, everybody was politically very active. That was the 1960s and the 1970s and there were lots of great causes - feminism and the Vietnam War and so on. I do not think, as someone who became British last year and voted a couple of weeks ago, that there is any shortage of great causes to be interested in, however the young in the US are increasingly apathetic. I think that a problem for the future of this country is the complete apathy among the young about what you guys do.

Q15 Mr Evans: I own newsagents in Swansea and have done from my father and my grandfather before me. On your observation about supermarkets, there used to be a restriction that you could buy newspapers where they would be distributed to. As I see it, the supermarkets clearly have taken a lot of trade away from the smaller newsagents and there are newsagents closing. Also, newsagents are finding it difficult to get newspaper boys and girls to deliver the papers.

Ms Elders: Absolutely.

Q16 Mr Evans: That has been incredibly difficult. It looks as if there has almost been a snowballing effect.

Mr Thomson: We deliver 50% of our evening paper in Aberdeen, for example. I would not want you to get the impression that our instinct is to close newspapers. Our instinct is quite the reverse, to invest as much as we possibly can to hold back any tide of peril that is coming our way. Obviously I am an optimist for the future.

Q17 Mr Evans: Do you think the newspaper industry are partly to blame for the plight in which they now find themselves, in the way that they did throw newspapers at supermarkets and turned their back on the network of smaller newsagents that were absolutely everywhere?

Mr Thomson: I do not think we have ever turned our back. I would certainly not say that, but of course supermarkets are where people go on a daily basis, and certainly once a week for a very large shop and we have had no alternative but to supply supermarkets, which, sadly, as you rightly say, the big brands potentially put others out of business. We cannot refuse to supply.

Q18 Chairman: Claire, you have painted a pretty bleak picture of the newspaper industry. We have had a submission from Ofcom which is not quite as bleak. They have recognised the pressures but they point out, for instance, that of the 60 titles or thereabouts that closed, 50 were free sheets. Of the remainder, in half of the cases it was because a rival publisher had produced a stronger title. They say, "There is evidence to suggest that the local media is under significant economic pressure as a result of a combination of structural change in advertising markets and cyclical impact. This is not manifesting itself in a uniform way, nor does it mean that the underlying fundamentals of free-to-air television, broadcast radio or indeed newspapers are broken." You would not agree with that.

Ms Elders: No, I do not agree with that. With great respect to Ofcom, they are perhaps not reflecting on the fact that, as Christopher said, businesses that are experiencing, as they did on average in the first quarter of this year, a 35% reduction in income, income that is not going to come back, I would see that as a pretty fundamental problem.

Q19 Chairman: That is a broken model.

Ms Elders: A 35% reduction? Would that affect your lifestyle if you had a 35% reduction in your salary? I think so. I think there are mitigating factors. All of these are very good businesses in some respects, in others not, but there are certainly very good business people who are doing everything in their power to sustain those titles, and in fact consolidation, in my view, has greatly aided the survival of some of those marginal titles which ten years ago would otherwise have already folded. It all depends on how you see economic scenarios developing. That is a critical feature of our forecasting. We are not aware of the basis upon which Ofcom is presenting a rosier picture for advertising, for classified research, for TV or for radio, and we are not aware that they do this work. Our view is really based on micro and macro modelling and the observable impact. Newspaper income declined by about 20% in 2008 on average. How many 20%/30% declines can you sustain and still be standing?

Mr Thomson: The very best margins in the business, which some of our friends behind have, are up towards 30%. But if you lose those 30% to 40% of your income, even though you have got to make very substantial inroads into your cost base, which all publishers have done or have begun to do, you are looking at the best titles in the business being, yes, profitable - just - and you are looking at smaller titles - and we love newspapers, that is what we are in business for, we are not about to close titles if we can avoid it - being sustained on the basis of the whole being greater.

Ms Elders: I just want to make an additional point about radio, because we are talking a lot about the local press but the radio industry stopped being profitable in aggregate in 2008. The whole point about capital markets is people are supposed to earn a return. So I am a little doubtful whether this is a very good investment story, either in radio or in newspapers. Alexander Medvedev bought the Evening Standard for 1 and is giving it a whirl. We are going to see people giving things a whirl but that does not mean they are sustainable.

Q20 Chairman: It may take some time for the Barclay Brothers to recover their investment.

Ms Elders: It will. That is a very good point. I think it is inappropriate for newspapers to emerge as trophy assets. I do not think that this a good thing. I do not think that we should be reliant on Russian zillionaires to pop up here and there. Obviously, given the losses experienced at The Times over the last decade, that is obviously a trophy asset. I am not entirely sure that is what media should be. I think that the local press is not a set of trophy assets at all; it is a functioning business - and that is quite an interesting distinction.

Q21 Adam Price: Continuing on that rather bleak theme, Nigel referred to some of the major local city titles in America that have either already ceased publication or filed for bankruptcy. The Chicago Tribune, the Los Angeles Times, the San Francisco Chronicle, et cetera. Thinking of some of the regional morning dailies, among your 1,600 that are going to go to the wall now -----

Ms Elders: 1500.

Q22 Adam Price: Amongst those, are we going to see The Scotsman, the Western Mail in Scotland disappearing in the next five years. Is that the kind of level of title that we are talking about, major regional titles, that could disappear altogether in the next decade?

Ms Elders: They could. My view is that smaller titles, as I said, that have much smaller circulation are more on the edge. Those are titles which have a particular value because whether it is the St Andrew's Citizen - which I would not put on the ailing list, because that is a very good micro economy - but, basically, the local/local, the local community titles. Those I think are most at risk in the first wave.

Q23 Adam Price: The Western Mail has 35,000 sales, I think.

Ms Elders: Yes, there are a number of titles that have much more significant circulation which may have more viability, but it is an important thing to remember that all of these newspaper businesses have already experienced the impact of substantial cost-cutting in order to survive. This story is not a recent one. We are looking at a decline that basically started in 2004 with government recruitment strategies changing. There has been a lot of pain already. The radio sector in this country is the most regulated of all the media sectors. The amount of regulation is very, very high. You can imagine that de-regulation would assist the radio industry in surviving. My argument here is simply that the newspaper industry has already been through massive amounts of cost-cuts and re-jigging of their businesses and I am a little sceptical about how much there is left that can be done to sustain these titles. Everybody has a different rule of thumb, but approximately 60% of the costs of any given newspaper are to do with human beings: human beings who sell ads, human beings who write. There will be more cuts, given specially the changes in paper and ink costs, in human employment. We are also predicting that there will be massive increase in unemployment in those local economies as a result of local titles either shutting or getting rid of people.

Q24 Adam Price: Criticism is often made of the music recording and publishing industry that they really should have seen it coming, that they should have seen the writing on the wall. Is that a criticism that could be made of the newspaper industry as well?

Ms Elders: Apart from Nouriel Rubini, a well-known US commentator who has been predicting the massive stock market crash and world financial crisis since 2003, I do not think that the newspapers can be blamed for not twigging that there was going to be this massive stock market crash, since this Government appears not to have had the benefit of that insight despite having the Treasury working on its side to gain that insight. If you look at page 3, you will see that in fact all of the media sector, the commercial media, were in fact experiencing a slow structural decline in their income which was related to the shift online and so forth. However, it is unsurprising that it is the middle of 2007 that we see a tipping point for the local press. That is really as a result of the massive decline in GDP. We are looking at a UK economy that is suffering, as we know, at a level that has not been seen since the immediate post-war period. This is an unusual set of circumstances. The other factors, as I said, are that the Government rethought its recruitment strategy, but above all, also, the Government has not been able to sustain its massive influx of capital into local economies, and that is affecting it. I was yesterday doing something in the evening and one of the fellow speakers, the guy who runs uSwitch, came up with the very alarming statistic that 19% of the people responding to a uSwitch survey - and I think it was thousands of people - claimed that they were no longer buying any non essentials. I am afraid that newspapers that you have to hike for are going to fall into that category, as indeed is the case for magazines. There is a massive reduction in discretionary spending that is going on in this country at the grassroots. We do not see it in London because this is a gilded cage, but at the local level there is enormous pain in local economies.

Q25 Adam Price: Plurality is a key concept in contemporary discussion of media policy. I am sure there will be lots of mentions of plurality in the report later this afternoon. In terms of the local/regional and regional media landscape, what in your view constitutes the minimum necessary level of plurality. How should that be provided?

Mr Thomson: I think the concept of plurality becomes very simplistic when one talks in terms of three titles, four titles or five titles. How many titles is plurality? You can have a gain, in my view, with less plurality. In plurality, for me, what is important is quality, accuracy, fairness, a sense of balance, of community, of engagement, of credibility, of literacy, and so forth. It is not just a question of how many titles you have, how many radio stations you have, how many television stations you have. In the current situation we are in, in some ways the more titles that are merged to save titles will create what I think people mean by plurality. When you go back into the history of the newspaper business, when you go back into the 19th century, there were lots more titles and they lost money for a long time. At the turn of the century there were titles that merged, the Courier and Advertisers title was the Dundee Courier and the Dundee Advertiser. They ended up merging in the 1920s, but I do not think we lost plurality in the end by the two titles merging. I think the paper became stronger, it was a much better paper, it welcomed views from all political spectrums, it was an independent title. I do not think that the very simplistic concept of saying that a number is plurality is the right way, personally, to look at it.

Q26 Adam Price: You see plurality working in the sense that a strong, high quality, local media provide a counterpoint and a plural voice vis--vis national.

Mr Thomson: Absolutely. Coming back to the first part of the discussion and democracy, you cannot have a strong democracy without a strong local press. That is where we all come from, the localities, the constituencies. One must not think about hegemony of local press, but a decently strong, vibrant press I think is a very important point. To have a sort of fake competition - and I am not casting aspersions or anything but I look at this and I think that the businesses we are all in are tiny. We are not Tesco. We are not BP. Sometimes they come together in one company, like Johnson Press or Trinity Mirror, but the businesses they are running are, by and large, 3 million businesses, 10 million businesses, 15 million businesses individually. Some of the titles are tiny. They are just little localities. To look at them all as an aggregate sometimes is a mistake. We are not BP or Tesco.

Ms Elders: I would like to add my view. I have been an observer in this country before becoming British last year, but I am an in-love observer because I am an immigrant. I love this country and I love its quirks. I would say that plurality is about print. I do a lot of TV news and I am constantly being cudgelled by producers to summarise everything in a soundbite lasting a minute and a half if at all possible. I think that TV news basically tells us what is going, on and the ability for it to provide any kind of colour, depth or whatever is incredibly limited. The same thing for radio news. Radio news is about what is happening. Interestingly, when you look at what people use websites for - and that is across the piece: the national websites, the local websites, the BBC - they are really basically doing celeb news, news headlines, sports results and celeb photos. Those are the four drivers of activity, whatever you look at. In effect, online and in TV and in radio you have a pervasive love of the news bite, the news headline. Obviously as a celeb or sports person or something, it is not relevant to what is really going on in the local community, except in so far as there has been a murder or car accident. It is really very different. For me, plurality is about print. It is about professionally produced, thoughtful, printed thinking. It is about words. It is about words on a page. It is not even words on a screen. That is my view. Having looked at the way that people use media for a very long time, and in particular the digital haves and have-nots, I think in particular the digital have-nots would recognise that plurality. I also think, of course, that the local news services, provided by ITV in particular, do play a part in reaching the range of information sources for people living in local spaces, but there is a very limited amount that you can do with the number of minutes that they have at their disposal. ITV has been asking for regulatory relief on those minutes for as long as I can remember, but certainly since 1992.

Q27 Adam Price: You were sceptical in some earlier exchanges about the prospects for things like citizen journalism, blogging to occupy the space left vacant by more traditional media forms. Is there not an argument that a local newspaper is essentially a passive form traditionally, apart from the letters pages. Now we have a profusion of new tools that people are only beginning to get into and they are starting to collaborate as well. You are seeing people using online tools with community activism. Is there not going to be a rich, new sphere of engagement at the local level?

Mr Thomson: That is true, but blogs are personal statements. I think it is US research that indicated that less than 4% of news ever originates on a blog. Blogs are commentaries on what is going on. They do not originate stories, by and large. You cannot look to blogs to originate. With very few exceptions, they do not have the resources to do that. The other point I would like to reiterate is David Simon's, the creator of The Wire. His point is that you do not see any bloggers down at the court room. You do not see bloggers doing any hard work, right? It is hard work to go down to the court room and figure out what the case was about. That is harder work. There is level of sensitivity that many bloggers just let loose. Everybody has probably had the experience of the inappropriate email that you send to someone. There is a frankness there in that. It is not a professional approach. The other thing that I think it is really important to understand is that some of the regional portals, the user-generated content, the community chat that was encouraged, had to be shut down because of racism, so you get the hot heads of the community basically stirring it up. I do not see that as plurality or democracy. I do not see that as a positive development that the racism or local disputes can escalate in this way, and that that is a vehicle for that. I just do not see it. I have a lot of respect for everybody who is out there in blogger land and so on, but, again, this is not a substitute. Most blogs are never read by anybody but the person who created the blog and his close personal friends. It is just not a replacement for 1,300 titles, a whole network of community space. I have not read every one of those titles, I do not know to what degree they are about leveraged pages, but they certainly have functioned in the teeth of difficulty in getting those titles, particularly the elderly folk who are really struggling to get those titles. Also, of course, there is your point about newspaper rounds. We live in a world where people are terrified for the kids to ride a bike, let alone do a paper round - because you kind of need a bike for the paper round.

Mr Thomson: Blogs have their place, but they are not a substitute. Our regional newspapers have 155 journalists, covering everything from charitable activities, sport, the local football match, photographs of kids in schools, very simple things. Those are not what bloggers really cover. They have their place, of course, and some of them are very good, but they are more of a soap box. They are perhaps a bit of a throwback to the 19th century. To take your point, maybe they will develop into some form of newspaper. My great grandfather was Sir John Leng. He was a Liberal Member of Parliament in Dundee, but he started off the Dundee Advertiser as a Liberal paper. He went across the world lecturing on Liberal values, to Chicago and elsewhere, and came back and reported those in his paper. Initially, it was a bit like a blog, but it developed into a newspaper, so it is possible to see that.

Ms Enders: Perhaps I could go back to plurality, because I think that is really at the heart of our concern. The regulated commercial media and the BBC do not and cannot contribute to local democracy. The BBC charter is explicit on this point. I do not think we can look to the BBC or the regulated commercial media to fill the gap, because it is just not the way that those media are backed by regulation.

Q28 Adam Price: Because of the need for balance, et cetera.

Ms Enders: Exactly.

Mr Thomson: They cannot have legal views.

Ms Enders: They cannot talk about politics, so they do not.

Mr Thomson: As themselves.

Q29 Adam Price: Do local newspapers still have the resources to do investigative journalism? If your charge against citizen journalists is that they are not professionals, they do not have the resources to really devote to a proper piece of investigative journalism, do local and regional newspapers do investigative journalism?

Mr Thomson: Absolutely. It is the sort of core. It is the newspaper man's business. He is putting his foot in the door for one thing or another. In the regional and local space, I think they do it in a very measured way. It is not a scandalous thing, it is a much more measured thing, but absolutely. They are into the district council chambers. Of course.

Ms Enders: Your father started a campaign against increases in prices at supermarket petrol pumps, because this was something that was a total bandwagon. There were masses of letters flooding in and so on. This was a cause that was championed by the papers in that area, and that slowly spread. That is quite an important part of consumers feeling that they have some way. If the voter turnout is this low, I do not think that is a sign that everybody is happy; it is a sign that everybody feels their vote does not matter.

Mr Thomson: The local and regional press are sort of feeders for the whole national newspaper industry, in a sense. Whatever goes on, some of the stories come up to the top and are big national stories and others simmer along. There is plenty of resource in the regional newspapers, but the stronger they are, the better.

Q30 Helen Southworth: There is a very long established concept that the local newspapers are perhaps the most important training ground for journalists, but also for writers and for broadcast writers. Have you done any assessment of what sort of impact the current situation is having?

Mr Thomson: We certainly saw them trained at our end but certainly that is one of the things that possibly could get cut, partly because we are taking on fewer people, so a lot of the journalists who we have are long established, long in the tooth and extremely good at what they do, so there is a problem, because training is particularly useful for people who are coming into the industry. Probably in most companies training I will not say has declined but the big training schemes are not there because there is not the turnover or the throughput, so you will not get 10, 20, 30, 40 people turning up to a training session. You will have regular refresher courses, of course, on libel and on the new Acts of Parliament that have come through, absolutely, but I think it is probably not as it was.

Ms Enders: It is inevitable, with the amount of employment that has been lost across radio, TV and newspapers over the last 20 years, that the opportunities for the young too have steadily diminished. Rather paradoxically and unfortunately, media degrees appear to have been immensely popular for the last decade. It is a bit of a paradox, given that really the funnel through which those young have to go has been getting smaller and smaller. There will still be people who care and who feel that they want to go through the rigours of it, but the quality of life and the quality of employment that they will experience will be very different from that which occurred in the past. I am sure you are aware of the fact that basically newspaper staff are no longer taken on as staff. There is a massive increase in freelancers and pensionless employment.

Q31 Helen Southworth: Do you have any stats on that?

Ms Enders: I could get them for you. I do not have them in the top of my head. I have other facts, but not that one.

Q32 Helen Southworth: That would be very helpful, to see trends.

Mr Thomson: I hope we can bring more and more young people into the industry as quickly as we can, because of course they are the ones, as we all know, our children, who are watching television, they have their iPhones, they are doing their homework, they are able to multitask. The way that we train them is to multitask. That is the sort of person you need for the future of a business, I think - very much so.

Q33 Helen Southworth: In terms of the wider creative industry, there is a very strong body of opinion that says you draw from local media because that is the first place that you will get a paid job to write.

Mr Thomson: Absolutely. It is the first place, so you have to get your foot in the door.

Q34 Helen Southworth: Are you finding concerns are being expressed about that?

Mr Thomson: There are journalists of ours who go into the PR business or go into the advertising agency business and come back sometimes. I would not want you to leave with the thought that it is all doom and gloom. There is a lot of vibrant activity still going on. We have not lost all of our staff, we are still very vibrant in the regional business, but I think the local business is suffering, and we see our own business, as I said earlier, as suffering greatly. Some of the ladies and gentlemen behind me have probably been much better at cutting costs and controlling the costs possibly than we have, but I would not want you to leave with the impression that the businesses are not well run. I think they are exceptionally well run, but in a very difficult climate.

Ms Enders: As you can see from the forecasts we have provided, there is no expansion in TV, there is no expansion in TV production, there is no expansion in multi-channel, there is no expansion in radio, there is no expansion in newspapers, there is no expansion in magazines. The overall level of employment in all those industries will fall and will continue to fall for the foreseeable future. That is a basic thing that will affect employment opportunities for the young. Previously, through the 1990s, we lived through a boom in newspapers, we lived through a boom in magazines, in production, in multi-channel operation and so forth, and obviously in the radio sector a number of stations have been licensed all the way through until recent times. That always soaks up people who want to stay in their local community. As someone who lives a divided life between a local community in Scotland and London, I know that some people want to stay and work in local communities. Young people want to stay and work in them and not only as shelf stackers.

Q35 Janet Anderson: You have both mentioned the substantial group of readers whose choice of media is particularly restricted. Claire, you referred earlier to the digital have-nots, the elderly, the low income or the unskilled and so on. Do you not think that, with the prospect of universal internet access, that will disappear over a generation?

Ms Enders: It will disappear over a generation but that does mean for a generation - i.e., in the next two to three years and through that 25 year generational process - the large number of people who are affected by this issue, because around 62% of the country subscribes to or had broadband access - almost 40% of the country does not. That is not an insignificant group of people. We also in my firm do a lot of work in broadband, mobile, telecoms, as John Whittingdale will tell you. We see across the broadband piece a dramatic slow down in growth. The broadband market will be ex-growth some time between August and November of this year. That is not only due to access. Everybody in this country can get internet access. There are few homes that cannot. It is like pay TV. If people choose not to buy something, it is for a whole set of reasons. Firstly, you have to buy a PC. It is not cheap to buy a PC, even a notebook, for people who have an income of 8,000, 9,000 or 10,000 a year. Many of your constituents no doubt fall into this camp of people who are no longer buying any non-essentials. A notebook or a PC is going to be a struggle. The work done by a number of universities indicates that the older you get your hand-eye coordination and all your ability to master technology is really substantially diminished. In the work we did for Digital Britain, in which we did all the forecasts and so forth for the team, we said the thing that would really help is not access; it is not five meg, eight meg or ten meg. It is a little bit like the process in which elderly folk have been transitioned into Freeview by way of a human being showing up and taking them through the ropes slowly, giving them the equipment and installing it for them. That has worked. That was a scheme that cost 1 billion. I am just remembering this figure out of the blue. It could be less; it could be more. It is a massive job to do that. Unless the government were prepared to do that, the digital divide will be completely unaffected by whatever government money is available. Also, this Government has as a purpose - perhaps the next Government may also have the purpose - to try to force people. It is sort of what I call the ATM system. If a bank closes its branch, everybody has to learn how to use an ATM. That is quite a cruel approach to older folk who do not have the money to buy a PC, who do not have any idea how to install a router. Disenfranchising older folk in this way, telling them that they are third-class citizens, is very inappropriate. I certainly do not want that to happen to me when I am 20 years older. I do not think anybody would want it to happen to them.

Q36 Janet Anderson: Even if we could get over this digital divide - you are obviously very sceptical about that - you are saying that there is no substitute for the written word.

Ms Enders: That is right. I think it is very important to understand. We did a lot of work for Digital Britain on this issue. The Government wanted a completely optimistic view about the transition of those digital have-nots which we have specified. I think that is so unrealistic, because it is such a very large number of homes. We are talking about easily ten million homes in this country, many of them occupied by single human beings who do not have the support network of people who can say, "I can take you through how to install the router" or, "Let us see what we do with this piece of kit that arrived in the post." It is not plug and play. People have enormous difficulty. Also of course there is the cost. People who are not spending on non-essentials do not need 8 or 10 a month of extra layout. The digital divide is a given. Obviously the Government took the view that the digital divide, if they did not want to persevere, was one related to TV viewing. In my view, TV viewing is something that rots the brain taken to excess. I do not see it as a valuable, social thing. Obviously the Government wanted to have a spectrum auction so it suddenly became a valuable good. There is no substitute, even online, for the printed word, certainly for the digital have-nots who are disproportionately likely to read the local and regional press and to have a strong love for their community, a love that is far greater than their love of what is going on in Iran or their interest in what is going on in the US and all the stuff that you can get by the bucket load online. Those people care about where they live and their communities in a way that we do not see so much any more. Some people have left that community space and now live in the great internet age, as probably we all do in this room, but for many people it is a choice they have made not to go that way. That personal choice is being relayed back to them as being inappropriate, stupid, that they are third-class citizens and do not get it. I do not think you can bridge the digital divide given the necessity for a PC, installation of broadband, payment for broadband. I just do not see that as realistic.

Q37 Janet Anderson: Mr Thomson mentioned earlier that you provide this website facility but you do not make any money out of it. It is free. Would your view about all of this change if you could make money out of it? Could you suggest ways in which you might charge for that kind of internet access?

Mr Thomson: Micropayments and Kindle have been mentioned. Kindle is much more for an academic environment. It is very hard to see, given that the BBC are giving so much away for free. They are almost the only people who, curiously enough, although it is free, we are all charged for it. It is very hard to see, given where they stand. They have almost single-handedly in the world resulted in the news having to be free for everybody else. It is very hard to see how you can row back from that position into charging 5p, 10p, 30p for your newspaper on line or anything. We have at the moment taken the view that the best we can do is produce a reasonably good website, not giving everything that is in our newspapers for free, because otherwise why would anyone buy our paper. If we look at the newspapers that have given almost an entire paper online for free, you generally find in the regional press that they have declined faster than we have. There seems to be a correlation there. We might be able to come up with a way of selling to local people some sort of Power Point presentation that uses internet skills or some package we can produce through the PA or something of that nature to sell to local authorities an editorial product of some sort, distinct from what we do at the moment. For example in Aberdeen we probably take in about 1 million of revenue, something of that nature, on our website and obviously we incur costs on that. It is a nice, incremental revenue but it does not compensate for the millions of pounds that have been lost. It is a service. In Dundee we could cover politicians or important people coming to the university, making a speech. We could put that online, but it is very narrow. It is a service.

Ms Enders: Out of the hundreds of millions of people in the world who look at news websites, only a million of them have chosen to pay. It is about 20% FT.com or thereabouts and about 815,000 subscriptions to The Wall Street Journal, which otherwise has a world circulation of 2.5 million. Micropayments and subscriptions do work in the academic space. All the scientific journals and so forth are sold on that basis. Access to archive is micropaymented in some cases and not in others. That is a model that works for professional type information or highly valuable, economic business stuff. If you go back to slide 2, you will see that display advertising income which has traditionally sustained all of the media including magazines and so on, is not only ex-growth; it is in decline. That display advertising also includes online display that we are predicting will fall this year, as indeed it is in the US. In the first quarter in the US online display fell by about 4%. The only medium that we are predicting to grow among the commercial consumer media is Google, which we believe will grow at about 4%. This is a business that used to have a compound average growth rate of 25%. That is the star performance this year. It is going to be Google. I imagine that will be the case next year. There is simply a lot less money in the media and that money will continue to drop. It is a pervasive phenomenon.

Q38 Janet Anderson: What would you say is the main concern of the newspaper industry in this area? Is it the fact that they no longer have a local monopoly in the way that they used to or is it that they are concerned about the demise of local news?

Ms Enders: Many newspapers do not have a local monopoly at all. There are many other media. People can buy a national paper. It is not like people are trapped in their homes. On the contrary: they have to get out there and hunt and gather their paper. Otherwise they are not going to get it. They can listen to radio. The words "local monopoly" are very curious in my experience. We live in a very fluid environment. There are a lot of bill boards that have sold locally. I do not even recognise the words "local monopoly."

Mr Thomson: We have always seen ourselves as trying to help our local economy, help our readers and advertisers, on the basis that if the local economy is successful naturally we might become successful. In the 19th century newspapers lost money. Increasingly they provided a service and that grew into the newspaper business that we know today. I do not think we have ever looked at newspapers locally as a sort of monopoly or anything like that. We view ourselves as providing hopefully a good service to our advertisers. Very often they are local people. We have no interest in upsetting the local motor car dealer, butcher, baker or candlestick maker because they are part of us. We are part of the local community. I think the Tescos of this world can look after themselves in terms of negotiating. We are the ones under the kibosh, if you like. Local people are our people. They are your people. I do not think we have ever seen ourselves as a monopoly.

Q39 Janet Anderson: I agree with you absolutely about local news. How local does the office that is producing that news have to be? Does it have to be in the locality in order to do the kind of local reporting that you think is important?

Mr Thomson: We have offices in Dunfermline, Kirkcaldy, Edinburgh, Dundee, Montrose, Arbroath and Peterhead. Ideally, your journalists are part of the community. They are known to people who are there and they go out of their front door to the court and cover a story. You cannot parachute someone in terribly easily from Bristol to Dunfermline, except for special events that you are covering.

Q40 Janet Anderson: It is happening. It has happened in my local area.

Mr Thomson: There is an increasing amount of freelance journalism taking place, probably on the basis of cost, particularly in specialist areas. The ideal thing is people who are fundamentally part of the fabric of the community, whether it is the butcher or baker, where there is a journalist next door and you can drop in and say hello. It is very friendly.

Q41 Janet Anderson: I absolutely agree with you.

Ms Enders: In the struggle for survival in various parts of the country where local economies have been affected by difficulties for a much longer time, there are some local economies that have been experiencing very severe difficulties since the beginning of 2006. Obviously in those parts of the country you are going to see more of an effort to get people to multitask and cover too much. I would say that journalists as a whole are being expected to work 12 to 14 hours, to blog, to video, blah, blah, blah. That is affecting local as well as regional and national. That is not a recipe for success. The flavour of the soup gets awfully thin. It is all pretty much the same soup and then we all drift up to the commonalities, which are what is going on in Iran, what the Prime Minister said and so on and all this big stuff. There is this granularity, this reality, of local life which is the reality of local people. The majority of the population in this country lives outside of London. This is their reality. You do lose it but at least you still have someone who is prepared to visit and find out what is going on. It is better than nothing.

Mr Thomson: These are little, local enterprises, not 100 million businesses. These are little, local newspapers, all part of the fabric of local life. I think they need as much support as they can get. We give them as much support and investment as we can.

Q42 Chairman: A number of solutions are being discussed. We might hear a bit more about those this afternoon. Two in particular are assistance from the BBC for local media and the second is relaxation of competition rules. To what extent do you think either of those offers a way of ameliorating the situation?

Ms Enders: The BBC partnership proposals in radio and TV do not affect newspapers per se except downstream, subject to what Digital Britain will say on the topic. Those partnership proposals are going to be helpful in reducing the cost of the sector, in particular the technology development and the resource cost for them. They will help but they are not going to save any organisation because what we are dealing with here are top line issues. Good examples include access to the i-Player for radio companies. It will not do anything for radio revenues, but it might extend the reach of commercial radio a tiny bit. Facility sharing for news is obviously something that has to be considered by ITV and so on, but again all of these proposals are of almost no relevance to the predicament of the local media. In relation to consolidation, as I said earlier, I think many titles have been kept alive despite their losses because they stick within portfolios of titles that were built up over a long period of time by acquisition. As a result where possible non-editorial costs that can be cut have helped to keep titles alive. I do not think there is any doubt about that. What we are anticipating will be spelled out in the Digital Britain report is something that is neither here nor there in my opinion. I think it is just a soundbite that makes the Government feel that it has listened in some unspecified way. In my view, I believe in action rather than just more words. I am afraid that having the opportunity to present a test case when the previous test case was that of the Dunfermline press, when it agreed to acquire some titles in Reading and Swindon and spent I believe over 1 million on this extremely wretched and very, very prolonged OFT process, given that the titles in question were sold for ten million, to have to allocate that money has frozen dead any interest at all in consolidation. There is not enough there. I do not think it is all that interesting. We will see. It has to be delivered. A change to the OFT rules is not visible at all. The idea that there might be a slightly more relaxed approach to some of the issues is in the gift of the OFT. No newspaper owner can bank on it. Therefore, no newspaper owner is going to pursue consolidation because you do not know what the outcome is. Why spend the money? These are companies that are struggling to hang on as best they can. Why would they want to commit vast sums of money to OFT processes or even the thought of disruption to either the intended acquirer or the intended acquisition? Why would they want to engage in that process when it is fraught with risk and extremely unlikely to be straightforward or cheap?

Mr Thomson: As far as the BBC role, we take the view that it is not appropriate entirely for the public purse to support other media which might become a Trojan horse. It will start off hopefully as a vibrant press, even if an under pressure press, developing our own internet and video businesses. We have a great concern about some of the suggestions being made, either for ITV or the BBC, and whether they will result in some form of enforced carriage by ourselves in the end on our own websites of material which we have in online content. That is a very significant concern. As regards the merger position, as I said earlier, a strong press does lead to a strong democracy and a stronger local economy. We back our local economies all the time. That is what we are in business for. We have 150 journalists and we produce an awful lot of content. That content is used by the local papers around us. I have never been able to quite understand why this is going to be a problem for regional and local papers around us being able to merge or take each other over. The content is partly the same content anyway. These are very small publications. This is not like some huge company taking over. I have never been able to understand the merger regimes that exist, which seem almost to control the press in some way, which is not I am sure what is intended.

Chairman: Thank you both.


Witnesses: Ms Sly Bailey, Chief Executive, Trinity Mirror; Ms Carolyn McCall, Chief Executive, Guardian Media Group; and Mr John Fry, CEO, Johnston Press, gave evidence.

 

Chairman: Can I welcome Sly Bailey, Chief Executive of Trinity Mirror, Tom Fry, Chief Executive of Johnston Press and Carolyn McCall, Chief Executive of the Guardian Media Group. Mr Sanders?

Q43 Mr Sanders: What is your assessment of the state of local and regional media today and prospects for the future?

Ms Bailey: You only need to look at the trading statements for the results of any consumer facing media company right now, particularly the regional press, to see that the industry is in crisis. We have heard a lot this morning about the reasons for that which are both structural and cyclical. I happen to believe that post-recession the majority of media companies were coping pretty well with structural change, so I do not feel as gloomy about it, with all due respect to some of the evidence that we heard earlier. Right now we are being ravaged by the recession on the top line, particularly classified categories. Advertising is driven by corporate profitability. When profits are under pressure marketing budgets get cut. We have seen that rising unemployment hits recruitment advertising. There is carnage in the car market. That affects motor advertising. The property crash affects property advertising. You only need to look at the top lines of any companies to see what is going on and to see that we are battling very, very hard. At the same time, you should not lose sight of the fact that we are all continuing to invest in our businesses because we do believe in a multi platform future. We think it is really important and we certainly hope this afternoon in Digital Britain that we will see an admission that media markets have irrevocably changed and the previously narrow definition of measuring those markets is quite wrong. It was quite right for 1989. It is now 2009. We need to reflect that and that is very much what we are hoping to see this afternoon, because we passionately believe that one of the things the industry does need to do in order to survive and prosper is to see consolidation.

Q44 Mr Sanders: Do you therefore think that the depiction of the crisis has been perhaps overstated and, if so, where?

Ms Bailey: No. We are in crisis. You only need to look at the numbers. Statistically, we can see that. You talked in the previous session about what the solutions are. We think that we have come up with at least one solution. I am not saying it is a silver bullet, but we believe that more scale will give us more opportunity to continue to build our businesses to meet the needs of consumers and advertisers to be part of Digital Britain. We all very much want to do that, but I believe that the recession is a greater problem than the structural issues that we are facing. That will do for us if we are not allowed to consolidate.

Mr Fry: What is clear is that we are having a very tough time on advertising in particular. Advertising has dropped 40% in the last two years. As was stated in the last session, that is over 80% of our revenue that has dropped by over 40%. You can work out the numbers. It is around a third of our revenue that has disappeared. To really understand the business, you have to understand what is cyclical and what is structural change. The structural change really got going for us with the adoption of broadband in 2003. What we found is that we were losing about 4% of our advertising each year due to structural change. Cumulatively by last year we reckon that we lost about 18% of our advertising due to structural change. Then we hit massive economic problems so the 40% drop that we have seen in the last couple of years I believe is more cyclical than structural. That implies therefore that there will be a bounce in advertising when the economy recovers. There will of course be further structural change. We reckon we will lose around a quarter in total of our advertising versus where we would have been. From here onwards, we are likely to bottom out this year and, as the economy recovers whenever that may be, we will see a recovery in our advertising.

Q45 Mr Sanders: That supposes some people are not going to survive, does it not? The bulk may remain but there are going to be casualties.

Mr Fry: As has already been discussed, there are newspapers today in the UK losing money which are either being sustained by their owners' generosity and their view of the future recovery or they are sold as part of a bundle with other newspapers. I think there might be some casualties along the way.

Ms Bailey: Regrettably, we closed 27 newspaper titles in 2008. We have closed eight so far this year. We have closed more products than that but those are newspaper titles. Undoubtedly there will be more. When your revenues fall as hard and as fast as they are, one of the challenges is that you have to vary your cost base. You have to get those costs out in order to be able to stay alive. Therefore, retrenching in markets regrettably is something that we are just having to do. That is about some rather than none, frankly.

Ms McCall: To build on John's point, the structural elements of this are very severe. GMG as a non-listed company has been saying this for many years. We have had to deal with structural change. It is important to note that recruitment, property and cars all have incredibly strong online competition - Right Move, Auto Trader and Monster, Guardian Jobs. You name it. There is a whole ream of sites out there. Most of us were very reliant on classified advertising. Where I am not at one with John is I do not believe the prospects for recovery particularly in classified advertising are strong. I think the structural change means that many people are now testing online media and using it quite effectively. I know that from one of our businesses in our portfolio which is Auto Trader. I do not expect to see a great deal of those three big markets and they were the bedrock of a lot of regional newspapers. I do believe display will come back. I do not think "bounce" is the right word. I think it will come back slowly and in a different form and shape. To rely on any kind of recovery for advertising going forward will not really solve the problems of the regional press. They are too severe. The structural change is too profound and the economic recession has just completely hammered it. Where can you engage on this in terms of being helpful? I think Sly is right. Deregulation is one step towards helping. Again, it is not a panacea. It raises all sorts of important issues about jobs because consolidation will mean fewer jobs. One of the things we have to face about this industry is it is going to be smaller with fewer people in it. If we do not face that and we keep saying that the industry has changed but the number of people in the industry is going to be the same, it is completely wrong and unsustainable. It will be a small industry but consolidation will help because then the clustering of assets in the right place, the clustering of local papers and regional papers, will make more sense. You will get more scale. The other thing we have to deal with is the BBC, the fact that they are there. They could be launching websites. We have to ensure that the BBC, when it competes online in particular here, needs to be compensated for market failure when it has happened but not create market failure, not crowding out competition. There has to be a period where regional newspapers can make their websites sustainable. At the moment we are getting audience but we are not getting revenue because the online revenue market is so difficult for everybody, not just for us. Although this is a minor thing, it is a big thing for the media economy and it does apply to regionals. It is this whole role of aggregators in the online world. We will always have local papers. We will try our best to keep those in print but they also have to live on the web. If you have aggregators where we make no money on the copyright of that content, we do not make any money on the point of consumption - that is the model at the moment - that has to change because we cannot sustain it. This is as relevant in local media as it is in national media. That model cannot go on because it is unsustainable. We are not making money out of the traffic. We have to make money out of content. When we talk about Digital Britain and broadband access, broadband access is fantastic, although Claire's point about the have-nots is extremely well made. The issue about broadband access is it will aggravate all these issues about BBC Online, their expansion, aggregators, and where do we make money out of this? If we are talking about the prospects, to answer the second part of the question, the solutions to this, some of the solutions are within the power of government and regulators to help us build okay businesses in the future. They are not going to be strong businesses. They will be okay businesses in the future with much smaller margins and we would hope they would be slightly profitable. I honestly do not think they are going to be very profitable.

Q46 Mr Sanders: The difficulty for us is understanding what the challenges are for different forms of media. Do the challenges differ between local and regional newspapers, between dailies and weeklies, between paid for and free newspapers?

Ms Bailey: I would not get too hung up on the differences between those because the crisis is one that is affecting the industry. We own the combination of those newspapers in markets. The way we look at markets is what combination of products do we mean? What is it that our readers and advertisers need in terms of dailies, weeklies, paid for titles, free titles? They are all under enormous pressure because those revenues have just disappeared. They have just melted, particularly as we have heard about this morning in recruitment advertising. There are a number of reasons for that. I would come back to what wider uptake of broadband will do. There are some very positive things but there are some negative things. We do need to look at the super dominant position of Google and Google News. It is our copyright that the Google News product has come from. They do not spend a penny on creating any news at all. We heard earlier about investigative journalism and what is happening there and do we still have the resources to be able to do it. They do not spend a penny on any kind of journalism at all and yet they are making money out of our journalism. These are the important issues that we have to address that will hopefully give us a better equilibrium because these markets have changed irrevocably.

Mr Fry: There is a bit of a news pyramid really, where locally we create the bottom layer of that pyramid. We have 11,000 journalists around the country and they create huge numbers of local stories. People further up the pyramid then take some of them and develop them. At BBC News what they do every day is they come into work. They buy the local newspaper. They look on our websites and they select from that. "There are 50 stories there. Let's take these three." They will develop those three stories during the day and that is what you will get on your evening news. If you do not have our journalists doing those 50 stories at the bottom, the whole pyramid does not work any more. Similarly, Google relies on us creating that bottom layer of the pyramid and then plucks stories and makes revenue. You have a similar issue as we have already heard in the music business where, in the end, you have to pay for content. Otherwise you will not have any content. You have to give money back to the content provider in some way and I think that is a way that government can help us.

Ms McCall: One of the most serious things in not having the bottom layer which would be local - I think Sly is right - local and regional press face the same problems. They are just exacerbated. The MEN is facing enormous challenges just as Rossendale is. They are just of different magnitudes. I agree with that. I think all of the press is dealing with the structural change and being hammered by the recession. The gravest danger of not having local media doing local reporting - we will come on to whether you need offices to do that or not; you certainly need local reporters to do that - is who is going to challenge the local council? Who is going to say that gang crime has got too much in this particular area? The MEN did a huge series on gang crime. It was a massive thing and it became a national story, but it would never have started without it becoming a local issue first and foremost. Even something as basic as when the snow fell and everything was paralysed, both ITV and the BBC took all their leads from local reporters because they could not get around the country themselves. There was a role for user-generated content, user video and all sorts of stuff like that but there was absolutely a need for verifiable, accurate information about whether you could use roads, get into work etc., and that all comes from local journalists.

Q47 Chairman: 1,300 local papers. Between the three of you, you probably account for at least half of those. You heard Claire Enders's prediction: in five years' time 50% of them will be gone. Do you agree with that?

Ms Bailey: It is impossible to say.

Q48 Chairman: But it is not unrealistic?

Ms Bailey: Perhaps not. How long is this recession? How deep is it going to be? If you look at regional press figures right now in advertising you would probably conclude that we are bumping along the bottom. Is the recovery going to be 'V' shaped? Is it going to be 'W' shaped? Nobody knows.

Q49 Chairman: The figures which Claire gave us which for instance predict the advertising revenue for local and regional papers is going to drop a further 1 billion between 2008 and 2013 are not 'V' shaped or 'W' shaped. They are straight down.

Ms Bailey: We are very passionate at Trinity Mirror about building what we see as a multi-platform media business. In the future, if the majority of our readers want to consume our content online, that is fine as far as we are concerned, as long as we have a business model. We now publish more online brands, 400, than we do newspapers, 140. I passionately believe that newspapers will continue to be around but there will be fewer of them. The industry will undoubtedly be smaller. You only have to look at what has closed already. I doubt that we will see a number of launches to make up for that. It is important to understand what our readers and advertisers will want in the future and to provide the number of products. You have to look in the round at the sorts of products that we are producing now and what it is we are trying to do in being part of Digital Britain, some of the practical things that you can help us with to help us get there. A lot of that is going to be the framing of legislation and a deep understanding of the issues that the industry is facing.

Mr Fry: Where there are three newspapers, the third is extremely vulnerable and is unlikely to survive the economic downturn. In some of the markets where there are two newspapers, I think the second one will also go. You are naturally going to get a consolidation down towards a single newspaper in a market place which means that the whole issue of competition is solved anyway because there is only going to be one in that market place anyway. The question is can we sustain that one because, if we do not sustain that one, all these issues of local democracy and cohesion of societies become real issues.

Q50 Chairman: The vast majority of the country, in your view, should get used to the idea that they are only going to have one local newspaper?

Mr Fry: Yes.

Ms Bailey: Definitely. It could be worse than that in that you could have areas without any newspaper.

Ms McCall: It could be but you would want to avoid that if you could. Reading is a good example where we tried to buy the second title. We were not allowed to so it has gone to an independent. Neither newspaper can make money in that area. What would people prefer? What is better for democracy? What is best for the consumers in that area? To have two titles that are going to have to retrench and become more anaemic as a result or one strong title which is going to compete with radio in Reading, with online in Reading, with national newspapers? This is a single market. To see these as isolated markets, those rules were created years and years ago when there was not a highly developed online advertising opportunity. The opportunities for advertisers now online are just enormous. Those rules have to be shredded. We probably said this to you at the last hearing we had that we need speed on these things. We need speedily to sort these issues out because the longer we take the weaker local titles are becoming because the recession has been absolutely dire for them.

Ms Bailey: In terms of Digital Britain and its recommendations, we do not need to see a change to primary legislation. It is about the interpretation of markets and this inappropriate focus on narrow definitions. We are evaluated and in that evaluation the fact that we compete with Google is not taken into consideration. That is not a framework that is fit for purpose in 2009. That is the important point. We do not need to see primary legislation changing. It is about the interpretation of our markets and what we are living with.

Ms McCall: It is also policy guidelines to the OFT. The world has changed and therefore the OFT need to take into account that the world has changed.

Mr Fry: I had the honour of the last competition inquiry investigating a company that I was running. I tried to explain that we do compete with Auto Trader in print for car advertising. Forget the internet. That was not accepted. The local newspapers in East London compete with The Evening Standard for jobs advertising and again that was not accepted. The level that the regulators have come from has been quite bizarre. They have looked narrowly at just newspapers and said everything else is outside, whereas we all know that we are competing with a wide range of media. We compete with EBay, Auto Trader, national newspapers.

Ms McCall: Auto Trader targets local traders. I chair the Auto Trader board and I can tell you that for a fact. It is bizarre. It applies as well to radio, which is this tiny, tiny market, 600 million last time I counted but probably 500 million now in the recession. It is a tiny market and yet it is seen as one market that is not competing with newspapers and online.

Ms Bailey: It is extraordinary that it is not the way consumers consume media across platforms now. We have been talking about this this morning, all of us who think about our media consumption habits. It is not the way that advertisers buy advertising or they are trying to target a particular audience or think about what is the best way to reach the audience with a combination of that. It seems to me that the only person still seeing these markets like this is the regulator. Certainly the stock market is not valuing media companies like it.

Q51 Mr Evans: We have had a fairly grim picture described this morning but it is worse than that, is it not? Sly, you said that you do not mind people going online to consume whatever the product is which may also be published and is published in printed form as long as there is a good business model. That is part of the problem, is it not? There is not a business model. You are in the middle, going from one to the other, whereas the old model is being destroyed because there are fewer readers and advertising is being crippled because of either the recession or because people are putting advertising in different sorts of ways. People are seeing all sorts of examples of advertising which are new and dynamic so therefore you are losing all of that but you are not gaining the advertising at the other end because the readership is not there and you cannot charge, can you, for people to access your newspapers on line because they will not pay.

Ms Bailey: You have a very different cost base and that is important to understand. You do not have the cost of physical distribution, of paper and print. We are one of the few media companies who have been very thoughtful about our business model. We are making money out of our digital products. I am not saying it is easy or we are making as much money but we have a business model that works. Our challenge at Trinity Mirror is that we need scale. That is why it is important to come back to the question of whether it is structural or cyclical. This very deep recession that we are facing is causing confusion as to what is really going on and nobody really knows the answer to that until we come out the other side of it. I absolutely think that we have a business there and that we can compete.

Ms McCall: Your point applies to many different mediums, not just local media. I work for a diverse group that has other media interests, not just local or regional newspapers, and we are all grappling with what that online model is. We are an industry in transition but we do not have all the answers. When we are briefing our staff about the future, we say that. It is not true to say we do not have readership. Our part paid/part free strategy which now other regional newspapers have too has grown our reach for the MEN for instance. For our weekly papers, reach is not the issue. Our online audience is about a million, much of which is incremental to what we would have had only in print. We cover, either through radio or regionals, about 90% of the Greater Manchester and Manchester area. That is a pretty good reach. Our issue is we cannot really make the money we used to make out of it, so we have to look at the cost base, as Sly says. Then we have to look at what are the viable models. It is not just one business model. It is lots of different models, one of which could be the local news consortium which has been proposed by Ofcom. I do find it quite extraordinary that the BBC and ITV have been fairly vociferous before they even know what this might be in Digital Britain, because it has been mooted that perhaps some surplus licence fee could be used to fund this local news consortium. I say let us investigate that. Let us welcome it. If you can sustain local journalism, if it is done on an arm's length, contract basis, tendered for, done properly, well structured and well run, why would you not subsidise local journalism which could be bought by the BBC or ITV? They do not want to do local news, not really. Why is that such a horrendous prospect to people if it sustains something that is so important to the fabric of society? All of the regional newspapers have got together and said, "We will try and make this work. Let us run a couple of trials. Let us see how it works. Do not discard it before it has oxygen." There are some things that we should be looking at. That could be an income stream. It is not going to be huge, but it could be an income stream.

Q52 Mr Evans: There is some potential there but you have to remember it is only a year ago when the BBC looked as if it wanted to put a lot of you out of business using taxpayers' money. At least you do not have that. You have all made the point about the pyramid and it is because the foundations are there that other national papers and national media are able to feed off that. We all see stories appearing in our local papers one day and then it is a national story the next. Part of the problem in looking at the cost base, which all local and national papers have done, which means that we have had fewer lobby journalists because they have been done away with. We have seen fewer journalists locally because they have lost their jobs because economies have had to be made. That foundation which was put in, which was pretty good maybe a few years ago, is now a lot weaker as well, is it not?

Mr Fry: Can I make three points on that. I have been trying to be slightly optimistic at this session. We have an 82% penetration of UK adults in print today, which is the second biggest penetration of any media to television. For all our problems, we still have an 82% penetration. On top of that we have huge web audiences. My group has seven million unique visitors a month and I am sure colleagues here have similar sized audiences. These are quite huge audiences.

Q53 Mr Evans: Are you making money online?

Mr Fry: Yes and no. The answer is yes if you marginally cost it. I take all my costs that I have incurred to add that extra media and the revenue that I have incrementally, I am making money on that. That assumes I have the journalists already paid for from print. It depends how you answer the question. I can answer it yes or I can answer it no. If I fully cost it, the answer is no.

Ms McCall: There is no question that the online model, whether it is local, regional or national, is a very difficult model to make profitable at the moment. The display model has too much inventory. There are ad networks and it is a commodity. We need to find ways of getting over that The recession has not helped. If it is growing at 20% or 25%, you could take volume and everyone is doing okay, but when it is down it is a very difficult model to make work.

Q54 Mr Evans: Everybody has to be online, do they not? You do not have a choice.

Ms McCall: No. We have to be online and we have to find forms for making money online. They will come. They have to come.

Mr Fry: That gets you back to the BBC point. How are we going to charge if the BBC is providing a public service for free? It does put up a barrier. Whatever mechanisms are developed for charging for online content, it is very difficult to see that adopted when the BBC is doing it free with our content, nicked from us.

Q55 Mr Evans: The question I have next adds to the gloom. With the younger generation not buying newspapers at the rate that they are perhaps when they are in their late twenties and thirties, there is no tradition there. Maybe newspapers will not be hanging around the house perhaps as they were when they were with their parents. The model is going to change completely, is it not? How do you see this future happening over the next few years?

Ms Bailey: For us, that is why multiplatform is so important. In print, we should not lose sight of the fact of how successful the Metro has been in bringing in a younger, more urban audience. It does not answer everything but there are new products that have caught the imagination of young people that are seeing them read newspapers. We believe that is why pursuing a multiplatform strategy is so important. Traditionally, a regional newspaper business would have around 70% penetration of its catchment area. If we are going to continue with that with circulations falling as radio listening is falling and ITV viewing figures are falling just driven by natural media fragmentation and competition, to get that penetration to continue we are going to have to develop these new products and services which are going to be online.

Ms McCall: I think it is more than possible that it will be an online only world, but it is not absolutely definite. I do not think anyone can say with any certainty that that will definitely happen or over what period of time. We have been predicting the death of newspapers for at least 15 years now since the advent of the internet. It has not quite happened yet. The whole digital disruption is very challenging but the demographic trends would say that newspapers have a long life still because if you are over 50, 55, 60, you choose to read newspapers. For locals and regionals, as Christopher pointed out, it has never been a very young audience. It has never captured that very young demographic. It has always been about 30, 40, 50 plus. There are different trends for different media. I am not sure you can say print will go for ever, just as you cannot say books will be dead.

Q56 Mr Evans: Is this the worst crisis for local and regional newspapers that you can ever remember?

Ms Bailey: Yes, no question.

Mr Fry: We have never seen such trends so quickly.

Ms Bailey: In the previous recession in 1991/2, recruitment advertising was down about 40%, peak to trough. It is down in excess of 50% already.

Q57 Alan Keen: Claire Enders was saying earlier this morning that there is a great danger that people locally will not have any information. There are not any stories coming through to national papers. Obviously we are entering the argument on the BBC. I have sat on this Committee since 1997. We hear from the commercial market saying that the BBC should not be allowed to do this or that because they are damaging the market. Here, the market is disappearing fast. I used to buy three newspapers to get the Yorkshire cricket scores. I do not need to do that now. If I want to see footballing points, I go straight to my own club's website. If I want to see what Marks and Spencer are doing, I do not look at a newspaper. The market is going. How do we provide both the stories and local people with a sense of community? We are looking for government help here. We already have the BBC and then we have Nigel saying the BBC should not be allowed to do it. What do you say about that?

Mr Fry: Offers from the BBC for help, I have heard several over the years and they have never come to anything so I am very suspicious first of all about any help from the BBC. There is always, "We are here to help" and then we write back and say, "How would you like to help us?" and it is always very silent after that.

Q58 Alan Keen: Are you saying the BBC should do it?

Ms McCall: Should just get in there?

Q59 Alan Keen: Yes, wherever there is a gap. If local communities need news and it cannot be provided by the market, is not the BBC ----?

Ms McCall: With the BBC you are going to get facts and a particular kind of news. You will get BBC news and you will not have plurality. I would also say that the BBC is now a global colossus. They are globally massive. They do not do local very well. Theirs is not a local setup. Our setup is a local setup so my question to you would be: why would you help to destroy what already exists by allowing the BBC that kind of entry to do local news? They are not allowed to give opinion. They are not really allowed to say, "This is good; this is bad." Claire made that point. Their Charter is very strict about what they can and cannot do. You will get one-dimensional news and reporting from the BBC and nothing else probably. You will get a lot of blogging, a lot of news generated content. What you will not have is another source of verifiable, accurate journalism.

Mr Fry: Most of the news agenda is set in print and then taken by the broadcasters later on. If you do not have that print to start it off, you will end up with very insipid news.

Ms Bailey: If we do not take the practical steps that to us seem completely obvious and necessary to help us preserve our industry and the future of local journalism, one day we will wake up and all that will be there is the BBC and Google. If that is the world that we want to live in, then let us sleepwalk into that. We do not think that is the world that we want to live in.

Ms McCall: I do not think it is the world consumers want to live in. All the research that I have ever seen is that consumers want choice and they do not want just the BBC.

Q60 Alan Keen: That is the question I am asking. If the market cannot sustain it, should government give money to local authorities to put contracts out for people to produce stories?

Ms McCall: Some local councils, as you all know, produce their own papers. I am opposed to that not simply because of the revenue it cuts off to us. I am opposed to that as a citizen because I live in Hertfordshire. I get The Birkhampstead Gazette. I think that is one of yours. I like the fact that they are constantly on the council's back about garbage collection and all sorts of other things. If the council were producing that paper, I would see that as a propaganda sheet. I would see that as talking about the council very nicely. I think it is a huge problem from a society that local authorities are now taking a lot of this in-house saying, "We can save a bit of money and we can do it ourselves." That is not local journalism.

Q61 Alan Keen: That is why I asked the question.

Ms Bailey: It is terrible. I think there are some practical steps in terms of stopping some things rather than doing some things as well. Face the issue head on in terms of practically allowing further consolidation. We are not asking for all the cards to be chucked up in the air and for there to be no control over mergers. What we are asking for simply is that there is an understanding that reflects the media markets that we now operate in. I believe that the industry then will find its new equilibrium as a result of that. Focus on councils masquerading as newspapers because that is what they are doing. That cannot be a good thing. Let us take steps to stop that. Councils absolutely need to communicate with their constituents but they do not need to do it in a form of a newspaper masquerading as a newspaper. Think about the BBC and what it is as we did successfully when we campaigned so vociferously against their local media plans. There are some quite practical things as a Committee that you could be focused on that will assist greatly in preserving local journalism. We realise that we run businesses and we have to survive the good times and the bad times. We think we can do that but that practical help will assist us.

Mr Fry: There are three things you can do to help us. One is to free up the merger regime to allow some consolidation, which will enable us to get some costs out. Secondly, to stop state funded competition, be it through local authority newspapers, which have become quite extreme in places like Tower Hamlets, or through the BBC encroaching further on locals. Finally, by keeping on advertising in our medium which penetrates 82% of the UK adult population.

Ms McCall: I agree with that completely and I would underpin it by saying that the sooner we can have certainty about the legal and regulatory framework the sooner we can assess the viability of what we are doing. I would put the local news consortium as the fourth thing. That needs support to be investigated further, to see whether it is part of the solution to some of the things we have been talking about today.

Q62 Chairman: Carolyn, you and Sly also have been very critical of search engines and aggregators, by which one essentially means one very large company. To what extent are they seriously taking your readers? They would argue that they are a signpost. They are driving people to your websites. They are not substituting.

Ms Bailey: They are not taking our readers. They are taking revenue. They have a super dominant position and they now control around 70% of online ad spend.

Q63 Chairman: You mentioned copyright but you are not concerned about them taking your material. They are just siphoning off your revenue.

Ms Bailey: Both.

Ms McCall: At the moment, it could be any aggregator. It is not just one. There is a dominant one but it could be any search engine or aggregator. At the moment, they send traffic to us when someone clicks on Google and asks for something. The Iraq War; The Guardian comes up.; off it goes; we get traffic. Google will say perfectly rationally, "You get traffic; we get revenue", because they sell ads at the point of distribution. They make money on our content by selling ads around that point of consumption. We do not get anything for that. We get traffic. Five years ago, you were able to monetise some of that traffic because the online model was very nascent, so you could get 15 for your CPMs. You were getting a decent amount of revenue. Now you are lucky if you get 2 per thousand. There is no real revenue off there. All the revenue is going to the search engine and we are not making money on that at all. It is copyright content that is being taken. Some will say, "Take your content off Google." You just cannot do that. It would be unbelievably damaging. The Guardian website has about 30 million unique users. Quite a lot of our users come from Google. A large percentage of that traffic comes from Google. We would be cutting off our reach and therefore our influence as a result of that. It is interesting because there is a competition issue there. The reason we cannot take our traffic off Google is because it would just hugely damage us competitively. We are in a complete no win on that. We have to put up with it and we cannot take any action.

Ms Bailey: It is worse than that because five years ago Google news did not exist in the way that it does now. We have talked about young people and media consumption and attention spans and how people consume media now. The worry I have is that, if you look at Google news, you will click on Google news. If you want a few lines about the Iraq War, you will see that. If you want a few lines about Britney Spears, you will see that. If you want a few lines about Amy Winehouse or whatever, click, click, click, and you may never ever click through onto those newspaper websites. That is a real issue for us. The model that previously worked in terms of us getting traffic starts to fall apart as well. This is a very real issue both in terms of their super dominance of the search market and the revenue market but also in terms of Google news and its rise.

Ms McCall: We work in partnership with Google on many things. We have Google applications across Guardian News and Media. At the same time, we want to get around a table with them and say, "Look, you have to recognise this issue." At the moment, because of the competition law, because of collusion, we as publishers cannot sit down in a room together and talk about the issue of aggregators. We cannot sit down and say, "What can we do about this? Can we go together to Google?" We would be in collusion so therefore as individual players we have to think about this or come to select committees like this and say, "This is a really big issue." We cannot sit in a room, even with lawyers, and do this because it would be deemed anti-competitive.

Q64 Chairman: I think you can do it here.

Ms McCall: One of the things you could recommend - they are doing this in the States at the moment - is that publishers can get together to talk about this issue, because it is such a huge issue, and that it would be legal to do so as long as it was documented and recorded. We could as an industry talk to Google. At the moment we cannot talk to them as an industry for the reasons I have mentioned, which massively weakens our position.

Q65 Chairman: In terms of what you would like this Committee to recommend specifically helping you address the dominance of Google problem ----

Ms McCall: It is not simply the dominance. It is about aggregators and search engines in the digital economy and how we get remunerated. What is the fair exchange of value at the point of consumption of our content?

Ms Bailey: It is a bit like radio as well. Nobody objects to their track being played on radio and that is because they are being compensated through the Performing Rights Society that collects all of those copyrights. Nobody is concerned that radio owners then go on to sell advertising around that music because they pay for the copyright to do so. We do not have that kind of model at the moment. Google is selling the advertising and deriving profits from that but we are not getting our slice of that in the way that the Performing Rights Society does for the music industry so very well.

Q66 Chairman: Are you suggesting you should?

Ms Bailey: I am suggesting that we need a mechanism to be paid for the use of our copyright content.

Q67 Chairman: Google would have to make a payment for every single piece of information it displays.

Ms Bailey: I am not suggesting that that necessarily should be the same model. I am talking about the concept, just so that we understand that there is a similar concept in the radio industry where the creators of that content, the musicians, the recording artists, are paid for their material.

Q68 Chairman: Google would say they are not reproducing the entire Guardian editorial. All they are doing is producing one line saying, "If you are interested in this subject, go and look at The Guardian."

Ms Bailey: They are monetising that.

Ms McCall: Which is why I keep saying "at the point of consumption." Whether you get it at the beginning or at the end, there has to be a model by which we are fairly rewarded for originating and creating the content that then goes on to be the business of the search engine. Search engines exist because they aggregate content. The content creators at the moment in journalism do not get rewarded for that in anyway. However that happens, we have to engage with them. There has to be some form of discussion, negotiation or debate about how this is fixed and at the moment there is no forum to do that. You can certainly help by saying, "This is a ridiculous state of affairs. It needs to be addressed."

Ms Bailey: It is one of the practical steps that could be taken to allow us to do that.

Mr Fry: We had a discussion about online business models earlier on. We have to recognise that two-thirds of all online advertising revenue is going to one company. That is the issue that we are really discussing.

Q69 Chairman: Have you talked to the Competition Commission and the Office of Fair Trading about that?

Mr Fry: No.

Alan Keen: You almost said that MPs have a use sometimes. We take that as a compliment.

Chairman: Thank you very much.