For Those Of You Who Really Want To Read A Positive, Up-Beat Story About Print Newspapers Then Read On

Philip M. Stone October 12, 2007

Financial analysts don’t often get to hear rave reviews about how well the newspaper business is doing these days, so this week was a bit unusual as the money people were told, “We still recognize the huge value of print and we will launch selectively where market opportunities present themselves. We have a revitalized business, which is clearly focused, more efficient, operating on a much reduced cost base, and has a renewed sense of purpose.”

And, for good measure, they heard the company’s domestic operating profits grew in the past 12 months by 6.9% and international operating profits (it has invested in print and online inHungary, Slovakia and Croatia) grew by 18%, for a total 9.5% increase.

Not bad for a company whose owners tried to sell it a couple of years back but then took it off the market because the offers were too low.

The company is the UK’s Northcliffe Media Group, owned by the Daily Mail & General Trust (DMGT), that publishes more than 100 UK publications, including 18 daily titles, 28 paid-for weeklies and more than 50 free weekly newspapers. The portfolio has a weekly combined circulation of 9 million copies. It changed its name earlier this year from Northcliffe Newspaper Group to better reflect the multi-platform nature of its publishing activities and its expanding digital portfolio.

Its presentation to British financial analysts this week was remarkable in explaining just how much this company has transformed itself since February, 2006, when it was taken off the market when bids to buy it came in too low. There are big lessons for the industry as a whole that can be learned from the experience of the past 18 months.

Yes, there was some really savage cost-cutting – it has achieved savings targets of £45 million, of which £9.5 million came from editorial, not all in job losses but rather new, more efficient ways of doing things. Nevertheless, total corporate headcount has dropped by some 1500 – around 26% -- since June, 2005.The group is also benefitting from an uptick in some advertising categories, jobs and real estate in particular, and it has scored an impressive 78% increase in its online revenues.

So there is little wonder why Managing Director Michael Pelosi was so upbeat with the analysts.  After all, just a month ago he was so confident that he paid £64 million for  25 newspapers and a magazine group that Trinity Mirror had put up for sale.

And the price paid showed yet another example of how buyer and seller can value properties so differently, depending on who is in the driving seat. When Northcliffe sold its Aberdeen newspapers in 2006 it was at 12 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) yet when buying the Trinity-Mirror newspapers that were quite profitable it managed the purchase at only 8 times EBITDA.

Pelosi told the analysts, “We are aware of our key challenges. We must deliver local audiences if we are to achieve profitable revenue growth. Digital publishing has a key role to play here. We are implementing solutions so as to address our challenges. Northcliffe is now an integrated local media publisher. Online, we are getting better by the day.

And in what sounded like a mission statement for running the business he added, “On margins, We are running our businesses faster, whilst ensuring we don’t compromise on content quality. We continue to drive for cost efficiencies and seek group-wide synergies. However, we will also continue to innovate and invest to maintain a strong competitive position.”

And he reiterated how important it is to be “local” in this global world. “Northcliffe is a collection of local media companies.  Local is our unique selling point.  In our global world, life is still local.  Everyday activities are conducted close to home.   Local media still has a big role to play in delivering a wealth of local information to its communities.  

“Our goal is to continue to be the first choice news and information provider for our local communities.  We are already distributing content via multiple platforms and to a wider audience. We deliver variety, depth, surprise and delight.  We will build on the strengths of our brands and launch new products where appropriate – indeed, we are already doing so in print and online. We have good people, strong management and, above all, we have the passion to succeed.”

One might argue the turnaround has come on the backs of the 1500 employees that are now gone, but the company is actually increasing salaries above the regional norm for those remaining, not because Northcliffe is benevolent, but rather low salaries translates into big turnover and the company is finding it is becoming more cost effective to pay more to keep turnover down.

Martyn Hindley, Northcliffe’s Finance Director, told the analysts, “We have also been addressing a structural issue of low pay within the regional press.  In the advertising and editorial areas, the average pay rises have been nearer 5%, as we increase remuneration to retain staff.  This is a key measure for us.  Back in 2005, a third of our advertising team left each year.  This has now been reduced to 27% and we are targeting to reduce this to nearer 20%.”

And the digital operation is also providing large revenue increases. As Pelosi explained, “All centers are establishing themselves as integrated local media publishers responding to both readers and advertisers’ requirements.  We will launch selective publications to reach new audiences.  Going hand in hand with our integrated media strategy is the improvement in how we sell to our clients - at both a local and national perspective. We believe that Northcliffe is now ahead of the game. 

“Editorially, we have integrated newsrooms to concentrate on delivering content through multiple channels.  No longer do we think purely print but rather what is the best channel for our news …… and for our advertisers.  All local editorial departments are now at the heart of online publishing.  In the past, it was handled centrally.  Breaking news online was not something which local centers could do easily.  That has all changed.  Stories are broken when they are ready and not to suit print deadlines.  Our editorial colleagues are embracing this change and welcoming it.  Our sites now incorporate video, readers’ comments and photos and we are building new community areas, which should be ready later this year.

And on the sales side, “Our sales teams have been trained to sell print and online.  No longer is online seen as a giveaway.  Instead, the merits of online are sold alongside the strengths of print.  In the last 12 months, digital revenues have increased by over 75% and we anticipate further impressive growth in 2008.

“Even more impressively, 80% of all recruitment advertisers want our local print and online; two thirds of all estate agency (real estate) clients want our local print and online; and a growing proportion of local motor (auto) dealers are taking our online package as well as print.  And that is just the beginning.”

It’s a corporate turnaround that has occurred in just 18 months, and while the UK advertising market may be recovering stronger and quicker than in the US, there are lessons here for publishers on both sides of the Atlantic who are fed up constantly hearing  that all is doom and gloom.

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