At the weekend, the Sunday Times ran a throwaway 150 words on Lionel Barber’s request that senior staff at the Financial Times should consider taking an extra week’s holiday this summer, on 30% of their usual pay.
So what? Well, the report prompted some thoughts from an analyst at Cazenove (reproduced at FT Alphaville yesterday). This excerpt on the FT‘s business model bears repeating:
As a reminder, the Financial Times newspaper accounts for only a small part of Pearson group (we estimate 5% of revenues and 3% of profits in 2008, moving to a small operating loss forecast for 2009E).
However, there is a high drop through to profits from cyclical fluctuations in levels of advertising which (despite the retail cover price increase to £2) still account for around 70% of total FT newspaper revenues.
Following a 13% decline in Q4 of last year we have already factored in a 25% fall in FT advertising revenues this year. Each further 10% drop in ad revenues (which we estimate at £180m for 2008) hits group profits by around £15m pa (-2.5% off EPS).
The last cyclical dip in profitability at the FT — caused by the dot.com crash — was nasty and severe. It took the pink ‘un what seemed like ages to emerge from the slump. As a business publisher, the FT tends to decline late in the cycle, and recover late, too.
This time will be no different. 2010 might bring a recovery of sorts for some consumer media. But in its recent survey of the prospects for media, PwC suggests that the market for financially-flavoured business information in Europe will only start to stage an anaemic recovery in 2012.
PwC’s numbers suggest that a similar dynamic will apply to the Wall Street Journal, which shares a proprietor with the Sunday Times. If anything, the US market will prove tougher. PwC expects the North American market for financial information to contract at an average rate of 5.5% between 2009 and 2013.
Not that you’d know it. In New York, Rupert Murdoch has been spending ‘major amounts of money’on the Journal and Dow Jones, according to the paper’s former managing editor Paul Steiger.
As a result of this largesse, Steiger adds, the Journal has been mostly ‘insulated’from ‘all of the trauma that’s been going on in the news business and particularly the newspaper business”. Not to mention the trauma that has now started to affect the market for financial business information in earnest.
News Corp’s investment plan has culminated in the Journal‘s recent office relocation from downtown Manhattan to midtown, where rents are up to one-third more expensive. The New York Observer suggested recently that the cost of relocating was ‘well in the millions, and could touch eight figures”.
No doubt there have been accompanying economies. News Corp’s plans to drive Dow Jones into new information markets look intriguing. It’s also a fair bet that the Journal is less exposed to cyclical advertising declines than the FT.
But additional expenses will shortly be incurred in Europe, where Patience Wheatcroft, newly-installed as editor-in-chief of the Journal‘s European edition, is transferring the paper’s regional HQ from Brussels to London.
With News Corp so willing to grease the palms of estate agents on both sides of the Atlantic, the Sunday Times presumably took some pleasure in reporting that FT executives have prepared an “Armageddon” plan that provides for deep cuts in local and international coverage.
Yet given what’s happening to financial information markets, the FT would be daft to ignore the darker possibilities.
The big questions don’t all loom over the FT’s HQ next to Southwark Bridge. As News Corp shareholders would probably agree, a fair few of them — mostly unanswered — have started to gather above the Wall Street Journal’s shiny new home on Avenue of the Americas in midtown Manhattan.
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