Written evidence submitted by Guardian
Media Group plc
1. INTRODUCTION
1.1 GMG welcomes the opportunity to contribute
to the Committee's inquiry. We believe that the future of local
and regional media is a very important and pressing issue—one
which has rightly moved up the political agenda in recent months.
At stake is not only the health of the UK's creative industries,
but also that of our local communities and democracy.
1.2 Local and regional media, and in particular
local and regional newspapers, play a vital role by reporting
and commenting on news that affects people's lives, holding authorities
to account and underpinning local—and therefore national—democracy.
1.3 The business model which for many years
has supported local and regional journalism has been fundamentally
challenged by structural changes such as classified advertising
moving to online businesses and the abundance of free content
on the web.
1.4 This has been going on for many years,
but the recession has highlighted these structural problems and
exacerbated their effects. The last year has seen dramatic falls
in advertising revenues, threatening the viability of many local
and regional newspapers and resulting in widespread cutbacks and
the closure of a number of titles. Due largely to the structural
issues at play, we do not expect revenues to return to previous
levels even when the economy recovers. The threat to the future
of local/regional news provision will remain.
1.5 Addressing these issues is the responsibility
of industry. It is not enough simply to complain about the problems
without offering solutions. However, government and regulators
also have a role to play.
1.6 In the immediate term this role would
include relaxing the local ownership regime; backing progressive
ideas such as Ofcom's local consortium model; placing reasonable
limits on the activities of the BBC; encouraging the BBC to engage
meaningfully in partnership discussions with commercial players;
encouraging local authorities to support independent local newspapers;
and recognising the effect of search engines and aggregators on
UK content providers.
1.7 The Committee asks respondents for views
on a number of issues. We respond below to the majority of these
points.
2. THE IMPACT
ON LOCAL
MEDIA OF
RECENT AND
FUTURE DEVELOPMENTS
IN DIGITAL
CONVERGENCE, MEDIA
TECHNOLOGY AND
CHANGING CONSUMER
BEHAVIOUR
2.1 Parts of the local and regional media
industry have traditionally sought to downplay the impact of the
structural changes outlined above. In contrast GMG has said consistently
for a number of years that declines in revenues and readership
were being driven by long-term, permanent changes in the market
as well as cyclical economic factors. We do not, therefore, expect
revenues to return to old levels even when the recession abates.
2.2 The recession has accentuated the effects
of underlying structural issues, with devastating effect. For
example, in the last financial year the profits of GMG Regional
Media (a division of GMG) fell by 85%. A business which made more
than £14 million in 2007-08 is now making a loss
each month.
2.3 The loss of classified advertising—a
major revenue stream for local and regional newspapers—to
online players such as autotrader.co.uk and Monster has had a
severe impact. Falling circulations of print titles have also
had a negative effect in commercial terms.
2.4 However, despite falling print circulations,
audience size is not the central problem. Many local and regional
titles have developed highly popular websites and argue that they
have thereby expanded their overall reach. Without question publishers
need to develop a strong web presence and engage with new audiences
online in order to be successful in the future. Our own Manchester
Evening News has done so with a site that features not only traditional
reporting but also video and audio content, blogs and forums.
The success of the MEN's website has been reflected in audience
size and industry awards.
2.5 However, making a significant commercial
return from an online audience has proved extremely difficult
for all players—"traditional" media and start-ups
alike. Online revenues still account for a very small proportion
of the total. This is due to a number of factors, not least of
which is the presence of huge quantities of free content on bbc.co.uk,
which makes it virtually impossible to charge users to access
content.
2.6 Local and regional newspapers therefore
find themselves in a Catch-22 situation: they know the future
is digital; but it is far from clear how they make that future
pay for the expensive business of journalism.
3. The Impact of Newspaper Closures on Independent
Local Journalism and Access to Local Information
3.1 While it is not clear how media businesses
will make a significant return from news on the web, one thing
is clear: the current model, which has long sustained investment
in local and regional newsgathering, is no longer working. Publishers
therefore need to find a new model with much lower costs in order
to remain viable. Regrettably, this means reducing the number
of people employed by publishers, reducing the number of centres
publishers occupy, and in some cases closing loss-making titles.
3.2 Some argue that the problems of the
regional press are largely the making of owners and managers who
demanded unreasonably high profit margins and irresponsibly cut
costs to maintain these margins—at the expense of quality
and therefore audience and revenue. The reality, though, is that
the issues are far deeper and more complex than this analysis
allows.
3.3 GMG Regional Media recently announced
various changes designed to reduce costs significantly. These
included nearly 300 redundancies and the closure of several
offices.
3.4 Our regional business has consistently
invested in its journalism and been at the forefront of innovation
in the sector with, for example, its pioneering multimedia newsdesk
and the MEN's part-paid, part-free distribution experiment. Nonetheless,
it has seen profits plunge and the business move into loss; and
the changes made by local management are designed merely to bring
the business back towards break-even. This is not about huge profit
margins, but survival and sustainability as a business.
3.5 GMG Regional Media is committed to retaining
as many of its people as possible and continuing to publish newspapers
in the North West and South of England. However, we recognise
and share concerns about the impact of cutbacks on communities
and local democracy.
3.6 The blogosphere has an important role
to play in the evolving media landscape. GMG has a strong track
record—most obviously via guardian.co.uk but also in our
regional division—of embracing the digital world and innovating
in these areas. However, bloggers cannot compensate fully for
declines in well-resourced, independent journalism, and the idea
that they can or will immediately step up to fill the vacuum left
by retreating publishers is a fiction.
3.7 Therefore GMG is concerned that declines
among local and regional publishers will result in a journalistic
and democratic deficit—a danger now acknowledged by government
and regulators.
3.8 GMG has been engaged in discussions
with government and regulators for some time about how they can
best support the industry. In the meantime, publishers like GMG
Regional Media have no choice but to make the often very difficult
and unpopular changes necessary to stay in business.
4. HOW TO
FUND QUALITY
LOCAL JOURNALISM
4.1 The truth is that no-one has yet come
up with a comprehensive answer to this question. GMG is a commercial
organisation and will continue to seek a commercial model to sustain
its local and regional journalism. However, it is clear that fundamental
challenges may require radical and previously unconsidered solutions.
4.2 Ofcom has proposed the establishment
of independently funded local consortia, which could include regional
press publishers, to provide broadcast news for the ITV regional
news slot, and possibly further news services online. Ed Richards'
preferred source of funding for such consortia is the BBC's digital
switchover surplus. While this is not by itself the solution to
the problems of the regional press, it could well be a very positive
step in the right direction.
4.3 GMG Regional Media has been exploring
this progressive proposal with Ofcom and other parties, and has
offered to conduct a trial in the North West. While GMG is naturally
cautious about the prospect of even indirect public subsidy, and
any regulatory burden associated with it, we recognise that in
these extraordinary times all possibilities should be on the table.
4.4 We also note that public subsidy in
other organisations, such as the BBC and ITV, has not compromised
editorial independence, and strongly question why Channel 4 should
be seen as a more worthy recipient of subsidy than other public
service content providers—such as GMG.
5. THE ROLE
AND EFFECTS
OF SEARCH
ENGINES AND
ONLINE CONTENT
AGGREGATORS
5.1 GMG believes search and aggregation
are vital parts of both the present and future online content
landscapes. They provide real value for consumers, and we partner
with players in the sector in a variety of ways. They are not
going to disappear, nor do we want them to. However, we think
the current market dynamic between content creators and search
engines/aggregators is skewed heavily in the latter's favour.
This is not conducive to a healthy environment for content creation
in the online world.
5.2 Search engines and aggregators benefit
from content creators, in the sense that they generate revenue
by acting as gateways to content other people produce. They do
not invest in the creation of content (such as journalism). Furthermore,
the most successful online business models (and the lion's share
of revenues) effectively involve searching and aggregating content,
rather than creating content. This results in a disincentive to
create quality content, and undermines the viability of its provision.
5.3 The argument has traditionally been
that search engines and aggregators provide online publishers
with traffic in return for the use of our content, and this is
enough to make the relationship symbiotic and equal. However,
there is a vast over-supply in the market of advertising inventory,
and yields have come under severe downward pressure. As a result,
the value of the traffic generated by search engines and aggregators
has reduced significantly.
5.4 This is happening at a time of broader
concerns about the viability of the business model for quality
online content. This applies to both the regional and national
press. As is well-documented, classified advertising revenues
have already moved away from local and regional publishers to
a significant degree. As it stands, it is hard to believe that
display advertising alone will be able to fund a healthy plurality
of quality online content. Furthermore, there remains no viable
model for players such as GMG to take revenue directly from consumers
in return for content—not least because of the vast quantities
of free content the BBC publishes on bbc.co.uk.
5.5 It is not realistically open to content
providers simply to exit the search market and remove their content
as a way of objecting to the nature of the relationship—due
the presence of a single, dominant player in the market: Google.
Even if content providers decided to object, they have no effective
sanction because there is no alternative route to market. Content
creators cannot simply remove their content from the dominant
player because the damage to their business would be significant.
As such, this increasingly appears to be an issue that requires
examination from the point of view of competition law principles.
5.6 We raise these concerns not because
we are trying to protect an old business model, but because we
are trying to create new models for a new world—models that
will support investment in quality content. These new models will
require fair acknowledgement of the value that our content creates,
both on our own sites (through advertising) and "at the edges"—in
the world of search and aggregation.
5.7 A successful Digital Britain will need
successful UK content providers. At present, we are seeing a substantial
drain of value away from the UK creative economy, as an ever greater
proportion of online revenues and profits go to non-UK-based search
and aggregation businesses. We have strongly encouraged government
to use the final Digital Britain report to acknowledge the importance
of this issue and the need to examine it further.
6. THE FUTURE
OF LOCAL
RADIO AND
TELEVISION NEWS
6.1 Commercial radio plays an important
role in the provision of public service content, including news,
despite the huge discrepancies in funding between the commercial
sector and the BBC's increasingly dominant radio presence—a
presence that consistently creeps beyond the boundaries of its
intended remit.
6.2 Commercial radio faces very serious
challenges. Ofcom estimated last summer that some 40% of commercial
radio stations were loss-making, and conditions have of course
worsened considerably since then. Relaxing outdated rules will
go some way to easing the pressure on players in the sector, for
example by allowing greater co-location and networking, and we
welcome the conclusions of the Myers independent review of local
radio.
6.3 Such a relaxation is important if the
UK is to continue to have a genuine counterweight to the BBC in
radio—in the form of viable commercial competition.
6.4 GMG Regional Media has been a pioneer
in local TV in the UK with its city TV station for Greater Manchester,
Channel M. The station has provided a range of programming from
news to lifestyle, music and sport, and has attracted a substantial
audience. It will be available on Freeview from November this
year.
6.5 The economics of local TV have always
been challenging. Channel M has never made a profit and the recession
has caused losses to widen, necessitating cutbacks. However, it
provides a valuable public service, has brought many benefits
to GMG Regional Media, and local TV could play an important role
in Ofcom's local consortia model—an option GMG Regional
Media is exploring with the regulator and industry.
7. THE DESIRABILITY
OF CHANGES
TO THE
REGULATORY FRAMEWORK,
INCLUDING CROSS-MEDIA
OWNERSHIP AND
MERGER REGULATIONS
7.1 We welcomed the government's invitation
to the OFT to conduct a review of the merger regime in relation
to the local media sector, and are contributing to this work along
with our industry peers.
7.2 Analysts' forecasts suggest that a substantial
proportion of the UK's local and regional newspapers face closure
in the coming year. A regulatory environment that offers more
encouragement to owners to consider mergers, disposals and acquisitions
will be a positive step for the sector, and for the future viability
of local and regional journalism.
8. THE OPPORTUNITIES
AND IMPLICATIONS
OF BBC PARTNERSHIPS
WITH LOCAL
MEDIA
8.1 GMG welcomes the BBC's attempts to become
more open and to partner with commercial organisations. There
are potential benefits for local and regional publishers, such
as the ability to use BBC content, or the iPlayer, on their websites.
8.2 However, these benefits should not be
overplayed, nor is this the first time that the BBC has raised
the possibility of partnerships in response to criticism. As an
example of this: the BBC recently leaked a story about an imminent
partnership deal with the regional press. This came as something
of a surprise because—like the wider industry—we were
unaware of the existence of such a deal.
8.3 Our experience of attempting to partner
with the BBC is that despite encouraging conversations and positive
intentions on both sides, the culture of the BBC acts as an inherent,
institutional barrier to effective partnership. For all the admirable
public service values of the BBC, at root it is set up to compete—and
to win. Very few of our past efforts to build partnerships with
the BBC have resulted in concrete benefits for our businesses.
8.4 Despite this, we hope that the BBC's
latest proposals will deliver advantages to commercial players,
and we will continue to work with the BBC to take this forward
where we can. Such partnerships will not, of course, provide a
solution to the structural issues faced by the local and regional
media industry.
8.5 The Committee is aware of GMG's views
on certain of the BBC's expansionary activities, so we will not
go into detail again here. To summarise: establishing reasonable
parameters for the BBC's activity and ensuring proper oversight
by the BBC Trust will be essential to the success of the UK's
creative economy, because such actions will allow the commercial
sector to invest with greater confidence in the future of their
own businesses.
9. THE EXTENT
OF PLURALITY
REQUIRED IN
LOCAL MEDIA
MARKETS
9.1 The prospect of the BBC eventually becoming
the sole provider of regional news is unattractive in a variety
of ways. It is important that plurality of news provision is maintained
at a local and regional level. As Ofcom's research has shown,
the public supports this view.
9.2 GMG believes that the right action (as
outlined above) by individual companies, industry, regulators
and government will help to maintain the plurality which is so
valuable to the UK's creative economy, our communities and our
democracy.
ABOUT GMG
Guardian Media Group plc ("GMG") is
one of the UK's leading multimedia businesses. Our portfolio includes
national, regional and local newspapers, a range of websites,
radio stations, magazines and business-to-business media.
GMG divisions and joint venture companies:
Guardian News & Media publishes the
Guardian and Observer, two of the UK's most respected and successful
newspapers, and guardian.co.uk, the internationally successful
website.
GMG Regional Media publishes the Manchester
Evening News and its website, and a number of weekly newspapers
and websites in the North West and South of England. It also includes
Channel M, a TV station for Greater Manchester.
GMG Radio operates regional stations across
the UK, predominantly under the Real Radio and Smooth Radio brands.
GMG Property Services operates software
providers to independent estate agents.
Trader Media Group publishes Auto Trader,
the leading motors classified website and magazine, along with
a number of other titles and websites. Trader Media Group is jointly
owned by GMG and Apax Partners.
Emap is a leading international business-to-business
publishing, events and information company. It is also jointly
owned by GMG and Apax Partners.
GMG is wholly owned by the Scott Trust, which
was created in 1936 to secure the financial and editorial
independence of the Guardian in perpetuity.
May 2009
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