Written evidence submitted by Trinity
Mirror plc
SUMMARY
Regional newspapers perform a vital role in
communities across Britain. However, the existence of a large
number of titles, and even whole newspaper groups, is under threat
from an unprecedented combination of structural changes and a
cyclical downturn.
Despite extensive cost reductions, numerous
rounds of restructuring and the closure of 47 titles (including
27 newspapers) in 2008 and 12 titles (including
8 newspapers) so far in 2009, a large proportion of Trinity
Mirror's regional newspaper portfolio is in a precarious position
and is at risk of closure in 2009 and beyond as the economic
situation worsens.
Without consolidation more titles will undoubtedly
close across the UK and digital investment will be limited. Indeed
the very survival of large numbers of newspapers and even newspaper
groups is now in question.
Mergers won't lessen competition as regional
newspapers now compete vigorously with numerous other media, in
particular with internet businesses, across all material advertising
categories. There is significant substitutability for newspaper
advertising by new media forms. These new forms provide material
price constraint on newspaper advertising rates.
Actions intended to protect media plurality
could in fact lead to a reduction in the number of newspapers.
Whole towns could be left without a local paper.
As the media industry transforms there is a
clear and demonstrable consumer benefit from consolidation—the
survival of the regional press.
1. THE ROLE
OF REGIONAL
NEWSPAPERS
1.1 Vital for local communities
The regional press performs a vital role in
communities across Britain and will continue to do so in the digital
age, providing that newspaper groups such as ours are able to
survive and continue investing in digital media.
Jack Straw has described local newspapers as
"the backbone of our democracy" and many studies routinely
place local newspapers at the heart of communities and local democracy.
Gordon Brown in a 2008 Newspaper Society speech said, "Local
newspapers are right at the heart of Britain's local communities,
examining the issues which matter, seeking out local people's
views, and representing their interests. That is why the readers
of local newspapers see them as such honest, responsible and accurate
sources of news."
1.2 Trinity Mirror plc
Trinity Mirror is one of the UK's largest newspaper
publishers. The business has two main operating divisions: Nationals
and Regionals. Our Nationals division publishes five national
newspapers, including the Daily Mirror and the Daily Record, and
related websites in the UK. The Regionals division ("TMR")
publishes around 150 local newspapers, including the Liverpool
Echo, Western Mail, Newcastle Chronicle and Birmingham Mail, and
around 300 local websites and online services linked to these
newspaper titles. Additionally, we have also acquired a number
of digital businesses in recent years. These are largely focused
on the online recruitment and property advertising sectors and
include brands such as Totally Legal, Gaapweb and Smart New Homes.
1.3 Regional Newspapers as providers of news
Regional and local newspapers provide greater
coverage of local news than any other medium. It is the local
newspaper that covers the local Crown and Magistrates Courts,
reports on meetings of local authorities and more importantly
of their Planning and Licensing committees.
Our courts system only works if justice is seen
to be done. Local newspapers are the "eyes and ears of the
public". The deterrent effect of many non-custodial sentences
is significantly enhanced by the fear of local opprobrium. It
is only local newspapers that report the everyday activities of
the lower courts.
Similarly the activities of local authorities
are only fully reported by the local press. To use US Justice
Louis Brandeis's famous phrase: "Sunlight is the best
disinfectant". The knowledge that most of their actions will
be reported by the local press to local voters helps ensure that
local politicians resist the temptation to abuse their position.
Newspapers are vital to the maintenance of healthy
local democracy.
They are also the places where people read about
their local schools, about their children's football teams, about
which Chemist is open 24 hours a day and who is preaching
at the Parish church that Sunday.
But it is not just lost dogs and local car crashes.
It is the campaign to keep the local hospital, the building of
the new hyper-market, the death of the respected secondary school
headmaster.
No other medium yet provides this level of news
written by professional journalists.
1.4 Regional and local newspapers are politically
independent
With one or two well known exceptions (Belfast
Newsletter, Belfast Telegraph and Yorkshire Post), local and regional
newspapers strive to avoid party political allegiance. In part
this is driven by commercial common sense. Circulating in small
geographical areas the publications cannot afford to alienate
large portions of their potential readership. This commercial
necessity has been turned into a virtue by many publishers (including
Trinity Mirror) who now have political independence enshrined
into their editorial policies. These policies would survive consolidation
and the ownership of an individual title would not affect the
need for it to remain independent.
1.5 Regional newspapers as employers and trainers
Regional newspapers are significant employers
with a wide geographical spread. In 2007, the last year for which
detailed figures are available, a Newspaper Society ("NS")
survey showed that the industry employed over 41,000 people,
nearly 12,000 of whom are journalists. The NS estimates that
total employment had fallen to 35,260 (-4%) in 2008 of
whom 11,200 (-7%) were journalists.
It is not too high a claim to say that regional
newspapers have long been the training ground for UK print journalism.
They have invested heavily in training and it has been a tradition
of longstanding that young journalists find their feet or cut
their teeth on local papers. There isn't a newsroom on any National
newspaper that doesn't have a very significant number of journalists
who started in the regions. Indeed many high profile television
and radio journalists started their careers in regional papers.
It is not easy to secure a job on a regional
newspaper for a young journalist but it is a world away from the
"entry only for the metropolitan elite" that often forms
the caricature of early employment in the media.
The closure of significant numbers of local
newspapers would have a direct impact on employment in the UK.
Moreover it would have a very significant impact on the employment
and training of journalists. Trinity Mirror's strong view is that
there will be an increasing need for trained and professional
journalists as the web develops. There is an important place for
"citizen journalists" and the blogosphere but the public
will soon learn to rely on and distinguish information from professional
and trained journalists who can be relied upon to subscribe to
basic tenets and ethics of accuracy.
2. STRUCTURAL
CHANGES AND
THE CYCLICAL
DOWNTURN
The regional newspaper industry is undergoing
rapid change as a result of shifting consumption patterns and
media fragmentation. Print media (including newspapers and magazines),
TV and radio are facing increased competition from the internet
(Google, blogs, social networks) for audience attention, and advertising
revenues are following users online.
Circulations for regional newspapers are on
a downward trend, declining by an average of—2.4% per year
over the last 15 years (excluding morning and evening free
newspapers such as Metro and London Lite). However, this trend
has accelerated in recent years and in 2008 circulations
were over—4% lower than in 2007. In that year circulations
had dropped by around—5% compared to 2006. This decline
is due to increased competition from other media, first as multi-channel
TV grabbed more audience share, and secondly and more crucially
the impact of the internet over the last decade. The take-up of
broadband over recent years, to the extent that over 62.5% of
households are now connected to the internet via a high-speed
link, has transformed the consumer experience and fundamentally
altered the competitive environment for regional newspapers.
According to a recent survey by the Internet
Advertising Bureau, in terms of media time spent by consumers,
the Internet, at 29%, is now second only to TV. Newspapers account
for around 6%. A similar recent survey of US 18-26 year olds
finds that the Internet is already the number one medium for this
younger age group, who spend just 3% of their media time consuming
newspapers.
A different form of structural change has also
had a significant impact on the number of newspapers sold. As
more and more of the national retail spend is attracted to the
large supermarkets, consumer buying habits have changed. As consumers
consolidate their shopping into one or two visits to a supermarket
a week, they are no longer visiting small local shops on a daily
basis. The habit of picking up a newspaper as they pass a newsagent
or shop in a local general store is being broken.
2.1 Regional newspaper advertising revenues
falling fast
As a result, advertisers have been shifting
ever-increasing proportions of advertising budgets online to match
these changing consumption habits. As shown in chart 1 below,
total regional newspaper advertising fell by—15% in 2008 and
has been forecast to fall by—28% in 2009, reflecting the
sharp decline in classified categories we and our competitors
have been experiencing over the last year. This compares to just—1%
decline in regional newspaper advertising revenues in 2007.
At the same time internet advertising grew by
39% in 2007, 19% in 2008 and, although also expected to be
hit by the recession, is forecast to decline by just by—0.2%
in 2009, far lower than the decline in regional newspapers.
Chart 2 below shows that Trinity Mirror's
regionals business is experiencing deep declines in advertising
revenue, down—36% in the first 17 weeks of 2009 compared
to the same period a year ago. Recruitment and Property advertising
are both down—50% or more. Other regional newspaper groups
have announced similar levels of decline.
Newspaper groups such as ours recover some of
this lost print income through revenues from their own digital
products, but the net effect is negative because of the small
size of embryonic digital businesses and the highly competitive
digital market. In 2008, despite significant growth, our regional
digital revenues accounted for just 3.9% of total revenues for
the regional business. In addition, chart 2 shows our regional
digital advertising revenues are down—14% in the first 17 weeks
of 2009 compared to the same period a year ago.
As a result, despite the slowdown in the growth
of internet advertising, the fragmentation of media and cyclical
pressures threaten the existence of the regional press.
Sources:
(a) Regional
Newspapers, 2004-2008: Advertising Association. 2009: Goldman
Sachs' Europe Media report
(b) Internet, 2004-2008:
Advertising Association/IAB. 2009: Enders Analysis.
Source: Trinity Mirror Interim Management Statement,
13 May 2009
2.2 New competitors in local markets
This net loss of advertising revenues by regional
newspaper groups demonstrates the fragmentation of media in the
digital era, as market entry barriers have been swept away. We
are now in direct competition with a raft of competitors on the
internet which did not exist just a few years ago, such as Rightmove
in property and Monster in jobs, which provide localised
classified advertising content from national platforms. Other
companies such as Google, Craigslist and Gumtree all have an increasing
local focus.
In addition, Local Authorities are cutting advertising
spend in the regional press as they develop their own websites
and in some cases launch their own newspapers and this is further
weakening our core advertising base. This is a particularly worrying
trend. A number of local authorities are producing heavily subsidised
newspapers that have moved far away from traditional four-page
information sheets to publications that openly compete with commercial
newspapers for advertising.
All this is happening as our local newspapers
and websites compete with an ever expanding BBC and its call on
consumers' time and eyeballs.
3. CONSOLIDATION:
BENEFITS, BARRIERS
AND THE
EFFECT ON
COMPETITION
3.1 The need for strong newspaper groups
As shown above, the structural changes afflicting
the newspaper industry combined with the current cyclical pressures
have led to falling circulations and weakening advertising revenues
which threaten the viability of the regional press.
Our goal is to build a growing multi-platform
media business, across print, online and mobile. But we are facing
an unprecedented combination of rapid structural changes coupled
with a severe cyclical downturn of which we have not yet seen
the bottom. British consumers need strong, robust, efficient and
profitable regional newspaper businesses of scale, in order to
safeguard the regional press that they value so highly and develop
compelling local digital services.
3.2 Benefits of consolidation
Newspaper groups will need to merge to survive.
Consolidation would enable sharing of back office costs and increased
scale economies, with bigger audiences and more local brands.
Improved profitability will save a number of newspaper titles
which would otherwise be closed and enable us to invest in digital
media.
Key benefits of consolidation would be:
— Synergies in functional areas such as
senior management, HR, IT, Finance, Marketing and office costs
would lower the fixed cost base of the business and improve profitability;
— In geographies where there is an overlap
of titles, cost-sharing in all areas, from editorial and sales
to printing, distribution and premises would improve profitability
of both titles and increase the likelihood of both titles surviving;
— In areas where the population and-or
advertiser base cannot sustain two titles indefinitely, a merger
may result in the closure of one title but a strengthened and
sustainable improvement in the profitability of the other, thereby
enabling communities to continue to be served by the regional
press;
— Scale benefits across the business, from
newsprint procurement to improved access to capital markets;
— Combined cashflow providing greater stability
for the combined entity and improved ability to service debts
and pension liabilities in the face of increasing pressures of
a declining advertising market;
— Additional cash to invest in digital
development.
3.3 Vibrant competition for regional newspapers
Only a few years ago a local advertiser had
no real option but to use the local press for pure classifieds,
for birth, death and marriage announcements or to promote a small
business. The advertiser can now, and increasingly is, doing all
of that through the internet. eBay, Craigslist, Gumtree, other
niche competitors as well as our own local sites mean that any
Wanted, For Sale, Lonely Hearts and other personal classifieds
have real local competition even from large National internet
sites. Rightmove, AutoTrader and Monster provide local advertising
services for property, motors and jobs. Further examples are in
the tables below. As a result, mergers between major newspaper
groups cannot now, in our view, lead to a substantial lessening
of competition because the local press no longer enjoys any real
market power.
In addition, regional newspaper groups are now
in competition with Google and other search engines, which use
a targeted advertising model to poach large and small advertisers
from regional newspapers across all of these advertising categories.
In the past, only regional newspapers and directories such as
Yellow Pages were able to match local advertisers with local audiences:
now we compete with Google whose very business model is based
on this kind of targeting. Search advertising was estimated by
Enders to be worth around £2 billion in 2008, compared
to £2.3billion for regional newspaper advertising, and is
expected to grow by 4.5% in 2009.
Table 3(a)
EXAMPLES OF KEY PURE-PLAY INTERNET COMPETITORS
| Key competitors |
Category | Comments
|
Google | All
| Search advertising pioneer with unmatched scale
|
| Yahoo | All | Search and display advertising giant
|
| Rightmove | Property
| UK Listed property market specialist |
| Ebaymotors | Motors |
Auction site now 2nd most popular in motors |
| Monster | Jobs | US listed jobs classified giant
|
| Gumtree | Private sales
| Ebay-owned free ads leader |
| Craigslist | Private sales
| Free classified pioneer |
| Moneysupermarket | Financial/travel/other
| UK listed price comparison market leader |
| |
|
Table 5(b)
EXAMPLES OF KEY WEBSITES OWNED BY COMPETING MEDIA GROUPS
| Key competitors | Category
| Sites |
DMGT | Property, jobs, motors
| Findaproperty, Primelocation, Motors, Jobsite,
|
| News International | Property
| Propertyfinder, Globrix, Hotproperty |
| Guardian Media Group | Motors, property
| Autotrader, Thinkproperty, |
| Newsquest | Motors/Other
| Exchange & Mart |
| Reed Elsevier | Jobs
| TotalJobs |
| Gannett/Tribune | Jobs
| Career Builder |
| |
|
In their different ways, each of these sites competes with
our regional newspapers and our digital advertising products.
There is now almost unlimited consumer choice. Proprietary research
we have undertaken in our key regional footprints reveals that
a significant proportion of people will turn to the internet to
look for jobs, property and cars, as shown in chart 5(c) below.
The result is that if we charge advertisers too much, they will
simply go elsewhere.
Chart 3(c)
RESEARCH DEMONSTRATING COMPETITION FROM THE INTERNET IN
OUR GEOGRAPHIC AREAS
Source: Proprietary research conducted in June 2008 for
Trinity Mirror by GfK
3.5 Competition in niche advertising categories
We understand that the OFT-Competition Commission has, in
past merger decisions, highlighted several categories of advertising
for which there are not thought to be effective competitive constraints.
These include Public Notices, display advertising by smaller businesses
providing local services and classified advertising for private
individuals such as announcements of Births, Marriages and Deaths
(BMDs).
We have demonstrated above that the regional press faces
substantial competition from the internet across the board, but
it is also worth noting these niche categories account for a small
proportion of our total advertising revenues; for example just
6% for BMDs and 5% for Public Notices (2008), as shown in the
chart below. Therefore we believe that a newspaper merger could
not be said to result in a "substantial lessening of competition"
in these areas, due both to extensive internet competition and
the small contribution of these revenues to our business.
Source: Trinity Mirror analysis
It is worth noting here that there is yet another potential
threat to the regional newspaper industry from government pressure
on local authorities to move many of their public notices on line.
Apart from the lack of transparency inherent in such a move (significant
parts of the country do not have anything like universal broadband
take-up), a steady income stream will be taken from the regional
press.
LOCAL AUTHORITY
"NEWSPAPERS"
A new threat to the viability of local and regional newspapers
has been the launch of a number of faux newspapers published by
local authorities. These new publications have moved on from the
familiar local information and council puff-sheets over four or
eight pages. They now represent themselves as alternatives to
commercially published newspapers. They purport to carry local
news and hold themselves out as full alternatives local newspapers
to potential advertisers. Some even publish advertising rate cards
with direct comparative cost per thousand rates against local
newspapers.
Trinity Mirror has a number of serious concerns about such
publications.
Shadow publishing exercises have demonstrated that they are
not independently commercially viable and are therefore being
published at a direct cost to local council tax payers.
Commercial publishers are therefore facing direct competition
from an operation in receipt of direct subsidy from public funds.
No one can believe that the reporting of local events, particularly
of local authority-council affairs, will be impartial or independent
in these mini Pravdas under the control of local council Directors
of Communications.
These publications will not serve democracy but will simply
add to the pressures on commercial operations without the luxury
of a publicly funded safety net.
CONCLUSION
The regional newspaper industry is under a three or four
pronged attack; from an expanding choice of media outlets, from
subsidised local authority newspapers, from an ever expanding
BBC and a move of traditional (mainly government) revenues on
line. This is all compounded by a cyclical downturn in advertising
revenues of an unprecedented nature.
Perhaps the only way that regional newspapers will survive
and be able to continue to play their vital role in a democratic
society of the provision of local news is through consolidation.
In some areas that may mean only one local newspaper rather than
two but one is better than none.
Former concerns about the impact of consolidation on local
advertisers should no longer be a barrier as the growth of real
substitutes, in particular the internet, means that local and
regional newspapers have no real pricing control.
May 2009
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