Examination of Witnesses (Questions 2291
- 2299)
WEDNESDAY 26 MARCH 2008
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 Business.dk 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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