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November 3, 2008

The Independent & DMGT: Anyone for a joint operating agreement?

By Peter Kirwan MM blog

Big denials this morning from both Independent News & Media and Daily Mail & General Trust.

James Robinson is taking a bit of a pounding for his story in The Observer suggesting that DMGT is “considering” buying The Independents. According to Robinson’s sources, the strike price could have been £1, with DMGT “taking on the loss-making papers’ liabilities”.

In point of fact, Robinson did a good job of highlighting the tactical jam in which INM now finds itself.

But a DMGT spokesperson told Reuters this morning “We have no intention of acquiring them.”

Meanwhile, an INM spokesperson tells the Irish Times: “Any discussions with UK publishers were solely in connection with shared services.”

Ah yes: shared services. At The Guardian, Roy Greenslade writes dismissively: “It all sounds like out-sourcing to me”.

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Er. . . not quite, and not necessarily.

For a start, the idea of shared service suggests a consortium-based approach — rather than the old-fashioned Big Bang approach to outsourcing (which effectively involved dumping unwanted business processes — and employees — in the lap of a single, monolithic, specialist supplier).

Secondly, shared services typically involve high levels of automation (and plenty of underlying investment in IT — although quite how this squares with INM’s proposed €50m cut in capital spending next year remains to be seen.)

At the Irish Times, the implication is that The Independents have sparked an industry-wide discussion about creating economies of scale via collaboration.

Discussions appear to have involved INM and DMGT — as well as Telegraph Media Group and Trinity Mirror.

What might end up emerging here is a UK version of the joint operating agreements that allowed two daily newspapers to continue to operate in many US metropolitan markets from the 1970s onwards.

Interestingly, if you look at the structure of these deals, they were far more than flimsy joint ventures. Getting them off the ground required the Nixon administration to pass The Newspaper Preservation Act of 1970. This was needed to circumvent competition law.

In many cases, there was collaborative selling of classified ads, a lot of shared office space, plus a unified board of directors for the JOA entity. Under the current circumstances, you’d assume that INM is encouraging its partners to think about putting IT, accounting and HR under one roof — for starters.

(The point here is that Robinson’s piece might not be quite so far off the mark as it seems. One outcome could be some kind of semi-merged infrastructure organisation, working across the industry.)

In IN&M’s view, editorial should definitely be involved. There’s talk of creating “more efficient editorial work flows”. No wonder. Beneath the corporate-speak, mind-bogglingly severe cuts appear to be planned.

According to the Irish Times, INM’s UK operation is “expected to seek 100 to 200 redundancies in the coming months — a reduction of up to 40 per cent of its workforce”.

In this context, the prospect of offshoring vast swathes of editorial work to Bangalore or Mumbai has to become very real indeed. The interesting question, I suspect, is whether INM can induce any of its rivals to move in this direction, too.

The upshot? Between INM’s talk of “shared services” and a full-blown acquisition of The Independents lies an interesting bit of territory.

Some of the solutions that end up emerging might not look all that different from a formal corporate merger. (Anyone for a Newspaper Presevation Act 2008?)

At the very least, the hare unleashed by James Robinson this weekend has a way to go before it runs out of breath.

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