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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