Select Committee on Communications Minutes of Evidence


Examination of Witnesses (Questions 2300 - 2319)

WEDNESDAY 26 MARCH 2008

Mr David Montgomery

  Q2300  Lord Inglewood: It is noticeable that your territory is all Northern Europe around the North Sea and Baltic essentially. Is it deliberate policy that you have not gone down into the Latin countries or is it because it is a tougher nut to crack or that there are different sorts of problems to deal with from your perspective?

  Mr Montgomery: There are clearly some January days in Oslo when I would prefer to be in Rome or in Madrid, but the reality is that they have a different model. It is mainly newsstand newspapers and we should not forget that in the states in Southern Europe which have had a turbulent past and at times an undemocratic past, the newspapers are not well developed and therefore they do not have the traditional door-to-door distribution. They are newsstand papers and are usually quite young, whereas our paper in Denmark has been around since 1760 and it was only stopped during the war because it was of course banned by the Nazis. So, in Northern Europe, there is a much longer tradition of newspapers and the system of door-to-door distribution. In Southern Europe it is a different model.

  Q2301  Lord Inglewood: I suspected that that was the case but of course in some ways Southern Europe might provide the greatest rewards if you can crack it.

  Mr Montgomery: Strangely enough, the Southern Europeans have developed an interesting model which they call "peripherals". Peripherals are the sale of DVDs and books, a series of books, which they do through the newsstands. So, when you buy La Republica in Rome on, say, Monday, you have the option of paying 90 cents or a euro for the paper but you can pay five euros and get a DVD as well. These have been tremendously successful in the southern countries. Strangely enough, the British market has not been able to replicate that because they have chosen to give things away rather than to sell them. Many of these newspapers make more money through those peripheral sales than they do through the actual publication of the title itself.

  Q2302  Baroness Eccles of Moulton: The question of subscription and distribution is a matter that I wish to pursue a little further because presumably, if 90% of the papers you are producing are being delivered to the door and not being sold through the newsstand or newsagent or whatever route, there must be a very, very different approach in how you present the newspaper because presumably you do not have to be competing on the newsstand by having the most eye-catching front page. Does this have a big influence on how you go about actually editing and producing the look of the newspaper?

  Mr Montgomery: I think that it varies from place to place and there is more competition than you would imagine. Denmark is a classic case where there are three national newspapers in the quality market and there are between four and five million people or two-and-a-half million adults and you have then a proliferation of free daily papers and you have two very energetic tabloid newspapers and most of the market is around Copenhagen. So, they do compete, even the door-to-door delivered papers; they think about their style and their presentation. You are quite right, there is much more emphasis here in the UK where there are something like 11 national newspapers all in cut-throat competition and therefore the design of their front page possibly does take more priority, but it does not escape our journalists that you have to have an interesting front page, even if you are guaranteed to deliver 97% of your copies to people who have ordered them anyway. There is still a pride.

  Q2303  Baroness Eccles of Moulton: That is part of hanging on to your subscribers, I suppose.

  Mr Montgomery: Yes.

  Q2304  Baroness Eccles of Moulton: If a newspaper were boring, they would leave that paper and subscribe to another.

  Mr Montgomery: They are quite highly priced. You get a service: the paper delivered to the door. Nevertheless, if the time comes up to renew your subscription and you can save a little money and the paper is not that interesting and you are not reading it, then we lose subscribers. It is just the same in the subscription market as it is in the casual sale market. If you do not try and produce an interesting product, you will lose sales and the difficulty, as every publisher knows, is that when our older readers finally die, there are not many people coming up to replace them. It is the same everywhere.

  Q2305  Bishop of Manchester: Mr Montgomery, you have spoken a lot about Northern Europe. I notice in our briefing that you also have operations in the Ukraine though I have very little information on the briefing given to me about what you do there. Is that such a small operation that it is relatively insignificant and, if that is the case, do you see it expanding in terms of the kind of distribution and variety of publication? Would you see that eventually happening there?

  Mr Montgomery: Eventually, but it is not a priority for the group and, as you say, they are very tiny. We are coming to terms with Poland which has recently ... Well, it is 20 years, but, even so, there is still a legacy of the past and newspaper readership is relatively small compared with the western countries. So, we have enough on our plate to develop Poland. I am glad to say that we are increasing our sales and our readership in Poland partly by launching new papers and it is very interesting to see that, in a country like Poland where they have been restricted in terms of media, there is still an appetite for getting into print for the readers rather than simply going online. They are developing a habit for print and sales and readership are increasing.

  Q2306  Bishop of Manchester: Why did you go into the Ukraine?

  Mr Montgomery: We inherited those businesses when we bought the Polish business and we run them out of Warsaw.

  Q2307  Baroness McIntosh of Hudnall: I would like to pick up this question about the readership and whether it is growing or declining. Right at the beginning of your remarks, you replied that the decline in readership of newspapers was a universal problem that everybody in the newspaper business is struggling with, but you have just been talking about one bit of your market in Poland which appears to be growing. First of all, is the threat to readership a general one or is it nuance as between different countries and, secondly, the subscription element of the way that you approach your leadership is unusual compared with the UK. Is the decline in subscribers comparable to the decline in readership in the UK where there is very little subscription?

  Mr Montgomery: I think that the relative decline in the UK is overall more significant than it is in our products in Europe and obviously subscription helps, but the reality is that there has never been a tougher time for newspaper people. We have to be much more ingenious and much more creative to stimulate buyers of printed products but, at the same time, we also have to expand our market and our readership through online versions of our content. No matter what anybody says, doing online content is very different from newspapers. You have to manipulate the content and make it engaging and entertaining in a way that perhaps you do not have to do in certainly serious newspapers. So, it is a new challenge. I think that we have sustained our overall subscription more successfully than in the UK. Particularly, there are characteristics in the UK in the newspaper market which are quite difficult. For example, the evening newspaper market. A lot of the regional groups depend on evening newspapers and you can see severe—6% or 7%—declines there whereas we are dealing with small communities with daily newspapers and, in Norway, our decline is currently 1.7%. So, there is quite a difference.

  Q2308  Baroness McIntosh of Hudnall: I am particularly interested in what you said about Poland when you were talking about a readership that has been fairly recently liberated from a lot of constraints around what it is allowed to read and this must be true in a few other places as well. I think you said that in that market, people were gravitating towards printed news as opposed to online. I just wondered culturally how the impact of newspapers works as between, say, a very highly developed market like the UK market where you might even be in a kind of post-political moment where the impact of newspapers on the political process, which is something we are interested in, is perhaps very much more difficult to understand here. In Poland, is it more directly to do with how the politics of Poland is developing?

  Mr Montgomery: I do not think that it is as complicated as that at all. I think it is simply that, if you give good value and you supply things that the public want, they will buy them.

  Q2309  Baroness McIntosh of Hudnall: They still want a newspaper though.

  Mr Montgomery: They want a newspaper for different reasons. Rzeczpospolita which is our flagship paper—and incidentally is 49% owned by the Polish Government at the moment—specialises in legal and economic news. Obviously, it has general pages. It is an unusual paper. The front section is white like a normal newspaper and looks not unlike The Times and it has politics and current affairs, and then there is the yellow section which is legal and the green section which is economic. Incidentally, we are selling more copies to an emerging business and professional class who need that as a business tool. Then you would get the other end of the scale where we are launching little weekly newspapers, door-to-door free newspapers, which are very successful in other parts of Europe and particularly in the UK. Strangely enough, what we have done is hired new young journalists who first of all launched the online version of the newspaper and secondly launched the physical, printed version of the newspaper, and this is really doing quite well because that market of little local city newspapers has never been exploited. We are selling more copies by launching more product and are developing existing products. The effort is immense and of course there is a market which is, as you say, is just getting used to the freedom of being able to buy what they want, and the market is only just beginning to provide that. The Germans have launched two daily national newspapers into Poland in the last two years and, although they are not profitable, it clearly is going to stimulate readership, which I think is good. Obviously it is good.

  Q2310  Lord King of Bridgwater: Did you say that the Germans had launched ... ?

  Mr Montgomery: The Germans have launched two national Polish newspapers in two years.

  Q2311  Lord King of Bridgwater: You speak about cut-throat competition in this country. Are you seeing into this somewhat unploughed land into which you have gone that competition is now moving pretty fast and other people are identifying the opportunity as you have? Are there any more free sheets coming in? Talking about cut-throat competition, what is the sort of understanding of what people are prepared to pay for a newspaper? Is it rather different?

  Mr Montgomery: I think that you cannot take liberties with the cover price. We gently increase our subscription price maybe by 2% or 3% per year. It is just in line with inflation, nothing more. I would not want you to get the impression that there is not severe competition in all of our markets because there is. I have mentioned that, in Poland, we were one of two national newspapers a few years ago and we are now one of five national newspapers in Poland. So, competition has become more severe and what we have done is to specialise in our premium priced market with a policy of providing quality to defend ourselves. In Denmark, we are in a hopeless situation where there are four daily free sheets. Four of them in a small country with a small capital where none of those four papers are making money and clearly those four papers selling advertising inexpensively are damaging the paid for titles' advertising. We, too, are in many cut-throat markets. There seems to be no limit at all to the desire of people to publish newspapers even when they are loss making. So, we have to, as I say, work harder to compete all the time and part of our strategy of course is to use our content more extensively online as well as in print. Only one of the countries which is hesitant about that strangely enough is Germany where the journalists have been very vociferous in their protests to prevent changes to working practices. Where we would want all of our journalists to work online as well as in print and they do in all the other countries, they are quite resistant in parts of Germany.

  Q2312  Chairman: Is consolidation going on in Europe in the same way as it has gone on in the United Kingdom and in the United States?

  Mr Montgomery: I think that there is a lot of talk about it but we are the first mover and the prime mover at the moment, but of course the Germans in particular would like to see a more consolidated regional newspaper business and there is a little bit of movement there. There have been three transactions in the last couple of years, the latest one being Suddeutsche Zeitung which was acquired by one of its minority shareholders based in Stuttgart. So, there has been some consolidation. We acquired a small franchise in Hamburg about 18 months ago and one of the Hubert Burda newspapers was sold to another publisher. So, there has been a little bit of consolidation but it has not taken on the impetus that we have seen over the last 20 years in the UK.

  Q2313  Chairman: You have just produced your results and you have a revenue of almost £1.35 billion. Operating profit rose by 23%. However, as I also understand it, you are saying "no more" in terms of expansion into other countries. You are going to sit in the countries that you are in.

  Mr Montgomery: We have only just acquired what amounts to 40% of our business in the Netherlands which is the biggest newspaper company in Holland. We have quite a lot of pressure there in terms of promoting efficiency and modernising some of the products and developing the online side which has unfortunately not been developed up until now. So, we have a major challenge just in Holland for the time being and everybody can see that, although we are not in any way hampered by our debt, this is not probably the time economically to be going and raising new money to go into new territories, so we have to be realistic. I think that in a year/18 months from now that might change. The question is, how will our model develop over the next year? Can we demonstrate to not just our shareholders but to other independent newspaper companies that our model of extracting new revenues from our content and from our audience/consumers will reinvigorate the newspaper business? That is a big if and a big challenge but, unless newspapers are prepared to use their content more creatively and are prepared to sell other goods and services to their consumers, they will not have a secure future. I think that it is as serious as that. We have to change the model if we are going to secure these, which are many of them, great newspapers. The business model of producing one set of content for one newspaper to sell to one reader is now unviable. There will be always be some franchises that are protected by trust like The Guardian and our competitor Jyllands-Posten in Denmark which are set up so that they protect the title and the title can be loss making, as both those examples are, but, in a commercially driven company, we must make our products profitable and the only way in which to do that is to change the business model as I have described.

  Q2314  Chairman: Is it fair to say that, in your European papers, you face the same problems as far as the United Kingdom papers are concerned in terms of advertising and the migrating of advertising to the Internet? Are you facing exactly that problem?

  Mr Montgomery: Exactly that problem. There is no difference in those characteristics between the UK market and the European market. Every country that we have is of course a different market and every product that we have is somewhat different. Overall, we are seeing gradual erosion of circulation and migration of advertising to other forms of media which, in my last remarks, using our content more creatively and across different channels to market is imperative if we are going to have a healthy newspaper business in the future.

  Chairman: We will come back to some of these European issues but I would like to move on and take you back in time to when you were an editor and hand over to Lady Howe.

  Q2315  Baroness Howe of Idlicote: As you know, we are very interested in the amount of influence or interference that proprietors may or may not have with newspapers that they own. We were quite interested to hear from Rebekah Wade that, as far as political coverage in her newspaper was concerned, it was entirely her and her editorial team who took the decisions and there was no interference at all from Murdoch. I just wondered what your experience was when you were editing Today and the News of the World.

  Mr Montgomery: As you say, it was a long time ago, it was 20 years ago, so I do not have a contemporary view of either Rupert Murdoch's behaviour as a proprietor or indeed any specific instances that I can tell you about in recent times. I had a comfortable relationship with Rupert Murdoch mainly because he left me alone and you must understand that the News of the World was a less important paper than the Sun. During the time that I edited that newspaper, we did have a number of significant stories including one of your number who finally went to jail, but we actually lost a libel action in respect of that particular story. Naturally, I would, just out of respect, have mentioned that sort of story which was going to break. I would have said to Rupert Murdoch and did say to him, "We have this story and we are going to publish it. You should be aware of it because someone may call you about it" because it was quite obvious that we were all brought under a lot of pressure not to publish. His behaviour was simply that he would say "thank you" and maybe ask a few questions to do with the evidence that we had collected to ensure that we had made a good judgment about publication. In my experience, when I was editor of the News of the World which of course has quite high octane stories from time to time, he listened but he did not interfere or attempt to persuade me one way or the other. He behaved much as any editor would behave in asking questions about whether it was wise to publish or not.

  Q2316  Baroness Howe of Idlicote: Are you saying that the incident which you describe was the only incident where you actually would have rung him up to tell him that this was going to happen? Were there any other incidents of that nature where he was warned beforehand and might have expressed a view?

  Mr Montgomery: The News of the World was a newspaper which had relatively little political coverage and—

  Q2317  Baroness Howe of Idlicote: Yes, but incidents of political interest.

  Mr Montgomery: And the paper was clearly a Conservative Party supporting newspaper when I was there and, although I have not read it recently, I am assuming that, if you can find the politics, it will be to the right of centre but I simply do not know. Then it was and no doubt it had some influence at elections, but the political tradition of the newspaper was known and acknowledged by the editorial staff. I think it has been my experience throughout journalism over a number of decades that, when you are appointed as an editor, you inherit the tradition and the culture of the newspaper and, when we appoint editors today—and there are different systems to do that in all of our countries—the editors' undertaking is to observe that tradition and culture and political line and therefore management or proprietors do not interfere with that because it is obvious what the paper's tradition is.

  Q2318  Baroness Howe of Idlicote: Other members of the Committee may want to press you a little more on that but, thinking about moving over from political to business interests—and there are one or two areas there in Murdoch's business interests—did you have any problems reporting on those or any constraints on them?

  Mr Montgomery: I edited two papers for Rupert Murdoch over a period of seven years: one was the News of the World which we have mentioned which did not have much high-grade political content and the other on was the Today newspaper which sadly does not exist anymore. The Today newspaper gained most of its readers from the Daily Mirror during my period of editorship and that would indicate that I had quite a lot of discretion as to how the political line of the paper developed. If anything, I was in a fortunate position to be able to develop the political strategy for the Today newspaper and Rupert Murdoch simply did not take any interest in it. In five years, I think he came to our office in Today once and, on that occasion, he was purely interested in the business side of the paper, not the politics or the editorial side.

  Q2319  Baroness Howe of Idlicote: Thinking about the battle which did take place between BSkyB during that period as far as Murdoch was concerned, were you under any constraints so far as that was concerned?

  Mr Montgomery: No. I was an enthusiastic supporter of developing the television market.


 
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