Future for local and regional media - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 111-119)


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 from government.

  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 help.

  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 advertising?

  Mr Newell: We recognise—and others may want to contribute to this—that 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 making?

  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.

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