Examination of Witnesses (Question Numbers
7 JULY 2009
Chairman: Good morning. For the second
part of this morning's session, I welcome David Newell, the Director
of The Newspaper Society, Michael Pelosi, Managing Director of
Northcliffe Media, Geraldine Allinson of the Kent Messenger Group
and Ed Curran, the Editor-in-Chief of the Belfast Telegraph.
Q111 Mr Sanders: Is the current downturn
the biggest crisis that the local press has ever faced?
Mr Newell: I think in terms of
financial position of the industry, yes. Not only in terms of
the size of the downturn but also the suddenness of it and that
is replicated in terms of the overall position of the industry
which is then demonstrated by the challenges that are faced by
individual companies. In bringing along today Michael, Geraldine
and Ed, what The Newspaper Society has tried to do is try to ensure
that you have before you industry representatives Michael Pelosi,
MD of one of the largest companies, Northcliffe Media, Geraldine
Allinson, Chairman of one of the privately owned companies in
Kent, and Ed Curran who has deep editorial experience. We hope
during this session to give some of the texture and some of the
flavour of the issues that are facing the industry.
Q112 Mr Sanders: What sets this apart
from other downturns that the industry has had to face?
Mr Newell: I think the sheer scale
of the loss of advertising revenue and it is a paradox because
it comes at a time where our audience is growing but our revenues
are declining. At one level, and on the plus side for the industry,
if you aggregate our circulations with our web traffic to our
websites, there are now more people with an interest in local
information than ever before and the companies represented here
and within the industry have access to a greater audience than
ever before, which shows that there is a consumer demand and interest
in local news and information. The challenge for the industry
is to find the revenue stream that actually supports that, when
our traditional revenue stream is under challenge, I think, structurally
in terms of cycle, but Michael may want to say something.
Mr Pelosi: May I help with some
data? Just looking at trends, which I am sure you could dig out
for yourselves if you access public records, our industry's advertising
revenues peaked in the spring of 2005. If you look at current
trends, we are beginning to see the ad revenue downturn bottom
out. Someone once asked me if that was a floor or a ledge and
I do not know at this stage. I think it is a floor. If you just
project it forward to the middle of next calendar year, our industry
will have suffered a decline in advertising revenues of between
45% and 50% and I think that any industry facing that level of
advertising revenue decline would be struggling. So, I would say
that this is the biggest crisis that our industry is facing.
Q113 Mr Sanders: How many of the
1,300 local and regional newspaper titles do you expect to close
in the next five years?
Mr Newell: I can give a global
figure. At the moment, we think that the figure is around 100
will close, getting on for 100. What the trend will be over the
next five years I think is hard to estimate. Claire Enders gave
evidence to this Committee and gave a very alarming figure of
around 500. I think from our perspective it would be very hard
for us to say whether that is a correct figure or not. I think
that it is an overly pessimistic figure in the sense that we do
believe very strongly that with the right environment, both regulatory
and otherwise, that the traditional model of local media companies
providing independent news and information is a model that will
sustain and be sustained, if it gets the right level of support
Q114 Mr Sanders: So, you do not see
a future without government changing either the rules or indeed
changing how companies are funded. Are there any particular rules
which you think government need to change in order to help the
newspaper industry survive?
Mr Newell: There are a number
of things that government can do. Government for example believe
very much in the role of local newspapers and spends a lot of
time trying to get stories into local newspapers, but the way
in which they allocate their advertising spend is completely unrelated
to that. The Government at the moment I think spends through Central
Office of Information (COI) getting on for £193 million a
year on government advertising. Of that total, only between 3%-4%
of it finds its way into local and regional newspapers. That is
an example of something that can be done which is not related
to the need for legal or statutory change but would undoubtedly
Q115 Mr Sanders: How would that compare
with, say, a large corporation in its advertising budget and percentage
that it might spend on local newspapers? Is it the case that the
COI is actually just doing its job properly in making sure that
taxpayers' money is being spent most effectively or is there something
you can compare it against to show that actually it would get
better value from taxpayers' money were it to spend more on local
Mr Newell: We recogniseand
others may want to contribute to thisthat we have to fight
our corner with COI in terms of showing what the advantages are
of the Government public authorities using regional and local
newspapers as opposed to other media, but we feel that there should
be more of a political steer that COI should actually open their
door to these sorts of messages.
Q116 Mr Evans: Hearing about the
number of losses you are predicting of about 100, Ofcom in their
evidence to us said that they felt that, of the closures that
had happened already, the majority of them were either free sheets
or weekly newspapers with low circulations. Do you think that
they are being too optimistic?
Mr Newell: Of the closures that
have happened so far, the majority of them are free newspapers
or weekly newspapers and often in areas where there are other
newspapers in circulation. As I said, I think that it is very
hard to predict this. I think probably the truth may in the end
be somewhere between Ofcom's analysis and Claire Enders's analysis.
Mr Pelosi: In our case, we have
closed 21 newspapers and they were free newspapers and they have
been our weaker titles.
Q117 Mr Evans: Were they all loss
Mr Pelosi: They were loss making,
yes. I believe that advertising revenues are now bumping along
the bottom. That is what we have seen over the last 20 weeks.
I believe that when there is an upturn in the economy, then we
will see an improvement in our advertising uptake. Undoubtedly,
some of our revenues have been lost forever; that is the migration
to online. What we do not know is how much is migration and how
much relates to the economic downturn, but I believe that we will
see additional revenues in our papers when the economy recovers
but that could well be two years from now. I do believe that more
titles will close; again they will be the weaker titles. I do
believe that publishers will look at different publishing models.
For example, they may take some of their daily titles to a weekly
model. We have done that with one newspaper, the Bath Chronicle.
It was not making money in a daily format and we took it weekly.
It could well be that some weekly paid-for titles will become
frees. I think that publishers will look at different models and
therefore I think that over the next five years to say that half
the regional press will close is too pessimistic. I do believe
however that fundamental issues will remain. Those fundamental
issues are that there has been a long-term gentle decline of the
sale of newspapers, not just local newspapers but also nationals,
and that gentle decline has accelerated over the last few years.
I think that is inescapable and is ongoing. We are going to see
the sale of newspapers going down. So, the reach that we will
have in print will be less. I think that that is going to be a
challenge for our industry. How do we deliver the reach that advertisers
want that they find value for money? There is no doubt that our
online audiences are growing. We say that in print you enjoy pound
notes whereas online you enjoy shillings. So, it is very difficult
at this stage to monetise online audiences and, whilst I can see
our online audiences growing and growing and growing, it is very
difficult to see how we are going to make money from online activities.
Q118 Mr Evans: If you cannot make
money from online at the moment, then this really reinforces the
dire projections because, if you say that it is going to be another
two years before there is an upturn in your advertising revenue
and you cannot monetise online and it is all costing you money
to do all this
Mr Pelosi: The online.
Q119 Mr Evans: The online as well,
yes. It is going to cost you a lot of money. Do you see perhaps
in five years' time a total migration away from some titles just
to the online productions if you can monetise them?
Mr Pelosi: That caveat is the
right one, if you can monetise them. I do not think that there
is a proven model yet that you can take a newspaper online and
make money out of it.
Mr Newell: Particularly given
the construct in the UK through the licence fee. The BBC actually
has created an online vehicle that is free to the public to use,
which makes it very hard for us to monetise a content model where
we are competing on the same platform. In the past, there were
different platforms: BBC, radio, TV and newspapers. In a converged
world, we are having to compete against the heavily subsidised
BBC that is entitled through the licence fee to make content free.