The UKs Hybrid Newspaper That Began The Strategy of Giving Itself Away Downtown While Continuing Sales In The Suburbs Is In Trouble, Free Distribution Is Being Cut Back And 39 Journalists Are To Go

Philip M. Stone March 12, 2009

The Manchester Evening News hit upon a unique strategy in May, 2006 – it would give 50,000 copies away downtown where it only had about 7,000 sales anyway, and it would continue to sell itself in the suburbs where it had some 127,000 paying customers. If all worked out as planned the newspaper would end up with a circulation of around 180,000 – keep the paying customers plus the new downtown readers. But it didn’t turn out that way.

Nearly three years on and the total paid/unpaid circulation stands at 153,724, so that’s 26,276 (15%) short of the target, but to get even there the newspaper ended up giving away far more copies than planned – in the last half of 2008 it was 81,092 -- and in the suburbs sales tumbled to 71,933. In other words the planned ratio of 27% giveaways and 73% paid-fors got turned around and has ended up as  53% given away and 47% sold. At 40 pence per sold copy that’s a downturn in subscription income of around £100,000 a week.

But it distributes today some 20,000 more copies than before the experiment began and the newspaper managed to persuade the Audit Bureau of Circulation to change its rules so that it could boast the total 153,724 circulation to advertisers so that sounds like a bit of a success story. But apparently not, for the newspaper has just announced the grim news it about to let 44% of its newsroom go (it had around 88 journalists and wants to layoff 39), pagination is to be cut and free distribution reduced.

And according to the publisher, MEN Media that is owned by the Guardian Media Group, when the 23 weeklies owned by MEN are taken into account with various offices closing  some 150 total jobs will disappear, including another 39 journalists working on the weeklies for a total of 78 journalist jobs that will go within the Manchester group.

Mark Dodson, chief executive of MEN Media, said: "The problem we face is that we are in unprecedented times as far as the regional press is concerned.”We've seen an alarming drop in revenue from our classified advertising business and what that has meant is there is real pressure on the profitability of the company. What we need to do to remain profitable is make considerable savings within the business and that has meant we have to make 150 people redundant in MEN Media." 

Dodson basically admitted that in the given economic climate the hybrid system is not working. “We need to find a new, sustainable, lower-cost business model. The economic viability of local and regional newspapers is under very real and imminent threat.” He believes there is a bright future ahead, but first one must survive what is going on today. "This is a worrying time for everyone working in the local and regional press. Some argue that our industry has no future. I think this is completely wrong – people still want local and regional journalism, and advertisers want to reach those people."

What we don’t know, but the newspaper’s accountants do, is whether increased advertising revenue covered the losses in subscription revenue. The fact that they increased the free distribution from 50,000 to 80,000 in the early days of the experiment – when there was still decent advertising around -- would indicate that it was acceptable, but now with advertising really tanking the newspaper apparently really misses that subscription revenue.

The next big question is whether those people who are now used to getting the newspaper for free will now fork out the 40 pence daily?

As the Guardian Group has its problems with its regional newspapers so, too, does Johnston Press, publisher of more than 300 regional and local newspapers. It announced 2008 results Wednesday and bluntly stated if it can’t renegotiate its £477 million debt and sell some assets fast (particularly its Irish newspapers) then that “may cast significant doubt on the group’s ability to continue as a going concern.”

This is the same company that just last May saw Ananda Krisnan, a Malaysian ranked this week by Forbes Magazine as the world’s 62nd richest person at $7 billion, invest more than £100 million in a series of transactions in which he bought some shares at 135 ¾ pence and participated in a special rights issue at just 53 pence, and he ended up with about 20% of the company.  And where is Johnston Press just 10 months later? Its share price closed at 5.62 pence on Wednesday, the company’s total stock market capitalization is just £36 million, it has canceled its dividend – all of this because of massive debt payments looming and in this year alone its advertising revenue is down 36% following on from a 17% decline last year.

Chairman Roger Parry, who is stepping down later this month, has this better late than never advice for media companies worldwide. “Johnston Press, where I've been chairman for eight years, had a decade of spectacular success and was feted as the best-run media company. Board meetings focused on delivering operational excellence and driving annual earnings. Dependable performance left us comfortable with taking on a high level of debt. When the recession and Web 2.0 came, we faced dramatic falls of more than 30% in some revenues.

“We should have spent more time on strategy and less on tactics, and seen that the past is not a good guide to the future. Radical thinking is better. As Andy Grove of Intel said: 'Only the paranoid survive.'”