Select Committee on Communications Minutes of Evidence

Examination of Witnesses (Questions 2291 - 2299)


Mr David Montgomery

  Q2291  Chairman: Mr Montgomery, welcome. I think that you are the first of the proprietors and editors who has come by himself without a long trail of advisers. You know what we are doing, that is to look at ownership and the media and the impact that consolidation can have and we have taken evidence from a wide range of people. You obviously have very extensive experience in the newspaper industry and what is interesting is that, over the last few years, you have been building up this group of newspapers in other countries of Europe: Germany, the Netherlands, Denmark, Norway and Poland. It is an impressive range of countries. I want to first get our minds focused and wonder whether you can tell us first something about your company and secondly about why you find Europe an attractive market.

  Mr Montgomery: The business case was very much to replicate what happened in the UK in terms of consolidating large numbers of regional newspapers and this was promoted very skilfully by Johnson Press and then by the Trinity Regional Group which became Trinity Mirror during the 1980s and 1990s and, every time they made an acquisition of a business, they were able to group together the overheads, reduce costs and make more profits. It was partly a defensive enterprise because clearly newspapers have been under commercial pressure for many years and, as readership diminished and advertising sales from time to time went through difficult patches, to make a business and build a business by consolidation was a very good model and it has worked until quite recently. We have seen of course both Johnson Press and Trinity suffering because of the downturn in advertising and very little consolidation remaining to do in the UK. We believed that we could do something that replicated this in Europe on a wider platform. Of course, there were challenges of culture and language, different management styles and a stakeholder economy in most countries as opposed to a pure shareholder-driven business for newspapers in the UK, so there were some challenges. I think, having rolled up these five countries in quite large-scale assets, we have at least proved that the economic model works, that these assets are actually performing better as a group than they did as individual assets, as our results this month have demonstrated. So, the model works but it is not without challenges particularly because the newspaper industry, as I say, remains under a lot of pressure from commercial rivals and I think that scale at least gives us some defence to protect and nurture these historic titles for the future. Of course, although that is something that is a worthy objective, my own role is to make sure that the business operates and pays returns to shareholders, but the two come together. If you protect and nurture these great franchises, then the business will continue to be successful.

  Q2292  Chairman: Tell us a little about your own company. You are the Executive Chairman of it and who are the shareholders?

  Mr Montgomery: The shareholders are traditional financial institutions. They include the main shareholder Invesco Perpetual based at Henley, so managing of course not just British money but managing global money. The second biggest shareholder is Lansdowne based in Mayfair where they again manage billions, British executives and British management but again global money. We also have Jupiter, Legal & General, M&G, all well-known institutions who control, between seven and eight of them, probably about 70% of the company.

  Q2293  Chairman: Do you have a lot of debt?

  Mr Montgomery: We have what we would say is a prudent amount of debt: £524 million. This year, we are expected to make £200 million of EBITDA. So, we are well covered in terms of debt. That does compare favourably, for instance, with Johnson which has roughly the same amount of debt, but its revenues are £600 million against our revenues of £1.4 billion. So, we feel comfortable with our position.

  Q2294  Chairman: Explain to us why Europe is an attractive market. From your first answer, would it be fair to say that the UK market has consolidated to such an extent that there are few opportunities for a company like yours whereas in Europe there are more opportunities?

  Mr Montgomery: You have really put your finger on it. It is not just the fact that there is more opportunity in consolidation in Europe because it is a bigger territory overall, but it is also because the European newspapers have much different characteristics to the UK market. The European market, particularly in Northern Europe, is dependent on large levels of subscription purchasers. For instance, in our Dutch businesses where we have a million daily papers a day, 97% are ordered on subscription, paid for in advance and delivered to the customer's front door every morning before seven o'clock. Whereas the market here in the UK continues to be controlled through third parties, in other words newsagents, and even where there are subscribers for The Daily Telegraph for instance, it is quite a low level and the newsagents still control those subscriptions through a series of vouchers whereas we in Europe tend to have a direct relationship with the subscriber and we have our own distribution companies. So, a very different model.

  Q2295  Chairman: Does that apply to other European countries at all?

  Mr Montgomery: It applies to Scandinavia and, to a lesser extent in Poland. In Germany, the so-called quality newspapers are mainly on subscription as well. So, Berliner Zeitung is 85% subscription. The other characteristic of course is that we are less dependent on advertising revenue or any segment of advertising revenue, so Johnson Press has 70% of its publishing revenues from advertising and Trinity has 80% in its regional papers whereas we have 60% and 40% of subscriptions. So, there is a better balance of revenues which we would argue gives us greater stability particularly with those, if you like, guaranteed subscription revenues.

  Q2296  Chairman: What about the European newspapers? Are there opportunities of improving the presentation of them or the coverage of them?

  Mr Montgomery: Every publisher will say that it is imperative to continue to enhance value through content and that is manifested by the launch of supplements or special sections, a concentration on certain subject matters. For instance, in Berlingske Tidende, our Copenhagen newspaper, we have a very great specialisation in business coverage and we have expanded that through our online site. We are always looking for ways to disseminate our content more successfully and of course gain readers. Newspaper publishers are no longer limited by the physical restraints of distribution because of course our content can be spread online and a lot of our activity is very much to promote content online and find ways of gaining advertising because of that and, in some cases such as one particular case in Poland, we get a large number of subscribers for our Parkiet newspaper, a financial paper, which has of course unique content which people will pay for online. Usually, most of our online revenue is advertising.

  Q2297  Chairman: But the subscription model is something that quite a lot of newspapers in this country would die for, is it not?

  Mr Montgomery: Yes and of course there is an expense that goes with that because you have to maintain a very high-quality distribution network and that, it may surprise you, is more difficult than you would imagine because, in Norway for instance and Denmark, there is such high employment that people do not want to do these jobs and indeed, in Norway, we have leased motorcars to give to Polish workers who of course then have a huge incentive to be loyal to us because they get to use the cars during their leisure time as well.

  Q2298  Chairman: Polish workers have got to Norway as well!

  Mr Montgomery: Indeed, they have in some number.

  Q2299  Lord Maxton: You obviously have a wide range of language across your newspapers. When you put them online, does it allow for translation into English in order that a Polish émigré living in the United States can read it in English rather than in Polish?

  Mr Montgomery: We do not do that. We use the local language in every case. Of course, you are quite right, it expands our market because Polish-speaking people all over the world can read our title Parkiet or Rzeczpospolita, which is the main title of Poland, online and they do and it expands our market and indeed helps us increase advertising.

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