Without Government action to tackle regional press debt crisis the industry faces a slow liquidation - Press Gazette

Without Government action to tackle regional press debt crisis the industry faces a slow liquidation

Chris Oakley is a former editor of the Liverpool Echo who led a £125m management buyout of the Birmingham Post and Mail group in 1991. Here he writes about the plight of the regional press in the wake of ABC figures which last week showed growing digital audiences, but print circulation down by an average of 10.5 per cent for the dailies and 6.6 per cent for the weeklies

Mountains of debt and management hubris. Two industries brought low by strikingly similar circumstances, but with very different outcomes.

Your money and mine has been used to bail out the banks to the tune of more than £500 billion. There is little chance we shall see all of it returned.

Last week’s ABC figures underline the near certainty that without substantial re-investment much of the regional press faces a similar fate to the banks in 2008, but through slow liquidation rather than sudden collapse.

Unlike the bank crisis, the plight of the regional press has prompted no Downing Street meetings and no bail out.

The Government rightly saw preventing the collapse of the banks as vital to the country’s economic interests and essential to protect the millions of individuals whose lives would have been financially ruined.

The steepening decline of the regional press does not threaten such an imminent catastrophic impact for the country or for individuals.

But in the medium term, the impact on the lives of individuals and on a democratic society may be even more corrosive.

Yet the aftermath of the Leveson inquiry suggests politicians, from Cabinet to council, may secretly welcome the decline in scrutiny that a financially weak press inevitably brings.

The latest ABC figures to the end of June 2013 were distressing – sales of regional dailies down by an average of 10.5 per cebt with several titles losing more than 20 per cent; only 56 of the 373 weeklies opted to have their sales audited and these were down by an average of 6.6 per cent.  Only one weekly title showed an increase in sale – and that was of less than 1 per cent.

Increases in web traffic across most of the major group’s titles may seem encouraging but, since most give their content away free and the growth in online advertising revenues falls far short of replacing lost cover price and print advertising revenue, it is not a route to salvation.

The fall of the banks and the regional press, these once two powerful and profitable industries, is interlinked.

In the early part of the century, the banks were awash with money and inventing more and more arcane ways to justify giving cash to companies paying unsustainable takeover prices.

The regional press was enjoying a golden decade with costs sharply reduced by more efficient production methods, revenues booming and the internet largely regarded as peripheral.

Regional press profits are being squandered on penal bank interest

My team was once offered a loan to make a takeover deal possible based on a projection of the cash in and out of the business a decade ahead…a projection that would have been as empty as a politician’s promise. We walked away from that deal, but others seeking similar deals did not; neither did the banks.

Between 2005 and 2007, Johnston Press spent almost £1 billion on acquisitions, including £250 million for 11 paid-weeklies and 10 freesheets in rural Ireland. Two years later they tried to sell them. The best offer was less than £40 million.

Johnston Press was not alone. Most large newspaper groups accumulated debt that is now unsustainable.

Yet the irony is that, on the face of it, most large groups are highly profitable. Johnston Press is still achieving an operating profit margin of almost 20 per cent, Trinity’s latest results show a margin of almost 15 per cent.

But those profit margins are driven by cost-cutting and quality reduction rather than revenue growth and value to the reader and advertiser.

A disproportionate share of the profits goes to pay penal interest rates to the banks that fuelled the acquisition folly. Original loan agreements had to be re-negotiated as the economic downturn and online competition squeezed regional press revenues.

In the case of Johnston Press, after paying back more than £50 million of debt in the first half of this year, it still owes £306 million, more than double its total revenues.

With a 13.6 per cent fall in total print and online advertising revenue and a £250 million write-off in the value of its titles and printing press assets, Johnston Press will have no alternative but to continue cutting costs and sacking journalists.

Trinity faces a similar situation and expects to pay more than £91 million this year in interest and loan repayments.

There is precious little left to invest, in print or online. 

The result is a stampede to irrelevance as journalists are sacked, titles merged and produced in templated designs from remote hubs and readers are fed “community generated” content, unverified, unprofessional and unreliable.

David Montgomery, the chairman of Local World, the combination of Northcliffe’s 100 plus titles and Yattendon’s 25 titles, recently outlined his vision for the future of journalism.

Editors, he said, were pretty well redundant, sub-editors were a thing of the past, journalists were actually content managers, manipulating material submitted by the community itself for transmission in print, online, by mobile.

He told MPs on the Culture, Media and Sport Select Committee: “We will have to harvest content and publish it without human interface. Journalists collecting stories one by one are hugely unproductive.”

Monty's WI pirates

Montgomery told Press Gazette content created by journalists and by those he termed “others” would not be edited. He sees journalists as “generators of content, managers of content and publishers of content without intervention from their colleagues or senior editors. All journalists will be editors in their own right.”

Asked about the future of face to face interviews, investigations and exclusive stories, Montgomery points to the example of a story, published in Local World’s North Devon Journal which he says went global.

It was about WI members who dressed as pirates to hear a speaker who had been held hostage in Somalia and was “harvested” from a report sent in by the WI.

Of course, it is an amusing local story that in days gone by would have been followed up by the nationals and is now sent global by online publishers desperate for free and harmless content.

But if Montgomery truly believes this is a great example of his vision for the future, pity the poor readers of Local World titles, in print and online.

Local World is not alone. Johnston Press, which made a quarter of its staff redundant last year and a further 214 in the first half of this, has a target for 50 per cent of all its content to be contributed free by community correspondents.

Trinity, which made cuts of £28.5 million last year and promises at least a further £10 million, has a similar policy.

In his book The Vanishing Newspaper: Saving Journalism in the Information Age, Philip Meyer writes of proprietors in the United States unable to sell their declining businesses who have embarked on what he terms “the slow liquidation” of their newspapers by charging more and giving readers less.

This allows them to siphon off maximum profits in the short term at the expense of the newspaper’s standing in the community and at the cost of losing readers and advertisers.

Meyer adds this may be presented as “temporary economising to be reversed once business conditions improve or even the exploration of a new business model…but don’t be fooled.”

Slow liquidation is precisely the policy being followed by major regional groups here as they attempt to service their debts at the expense of the communities they are supposed to serve..

Conspiracy of shameful silence

Does any of it matter, if one by one regional titles disappear; if, when there is nothing left to cut, those crippling bank debts cannot be repaid?

The immediate losers will be the shareholders and sympathy for them may be scarce. It was institutional shareholders who helped to create the problem, demanding reckless growth by acquisition and discouraging online investment until regionals had already lost major advertising categories. The banks’ losses, if any, have been minimised by their sky-high interest rates.

But there are other more important losers.

The conspiracy of shameful silence at Stafford Hospital where 1,000 patients died through negligence or ill-treatment was first exposed by the Wolverhampton Express and Star. Whistleblowers’ first port of call has usually been to pick up the phone to their local newspaper.

Reporter Shaun Lintern, who covered the story for almost five years but is one of the thousands of journalists no longer working in the regional press, said: “If my newspaper had not existed, those families had nowhere else to get their voice heard. I believe we made a difference for them.”

But he went on to say the paper could no longer investigate such a story because of staffing cuts, adding: “If we are not going to resource stories like this, what kind of news coverage are we giving to our readers?”

It’s not a question those who run today’s major regional newspaper groups want to address or, indeed, that those groups are financially capable of addressing.

It’s not a question that those who control the levers of power want to hear when diminishing scrutiny enables them to sleep easier in their beds.

Is there an alternative? Publishers focused on meeting their commitment to the banks would have us believe not, but in Orange County, California, a revolutionary business model appears to be working.

The 107-year-old title’s new owners announced 12 months ago that they were doubling their editorial workforce by recruiting 180 editorial staff to expand and improve local coverage.

Earlier this year, they announced they were prioritising print over online and introduced a paywall – one dollar a day for a print and online subscription with no discount for digital only access.

Seven day print circulation has increased and seven-day digital subscribers have risen by 124,000.

Most journalists will applaud Eric Spitz, one of the new owners, when he says: “We don’t agree that a newspaper should be in the business of giving away its news content to everyone who wants it, regardless of whether they are paying. McDonald’s doesn’t give away its burgers for free.”

It is too early to say whether this experiment will continue to succeed but the £10 million extra annual editorial costs could not begin to be afforded by regional publishers here – unless the debt mountain can be levelled.

Is there a way that could be done without continuing to squeeze the lifeblood from titles?

Zombie publishers stagger on

Neil Fowler, a former editor and associate of Nuffield College, Oxford, suggested last year that the government might help by encouraging the endangered big groups to negotiate an orderly default on their debts with the titles sold to local businessmen or communities.

Since then, Lloyds has gone down this route by writing off the £25 million debts of the Dunfermline Free Press group to allow a management buy-out to go ahead in return for a 90 per cent shareholding in the company.

But while the big groups stagger on, zombie publishers paying the banks’ exorbitant interest rates, the price of default would be high and many larger titles are too damaged to attract buyers.

A more radical step might involve the Government guaranteeing a proportion of the debt in return for a substantial reduction in current interest rates or offering low interest loans to publishers to repay a significant slice of their bank borrowing.

There is, however, no sign that the Government or any political party has any interest in helping a robust, inquiring local media to survive. Instead the government is promoting local television, a failed experiment of 20 years ago.

Yet there can scarcely have been a time when we have needed more a robust, inquiring local media than in the post-Leveson shambles.

The apparent assumption by Lord Justice Leveson that arms of the State can be trusted to regulate themselves in the public good is already having a pernicious effect.

Police officers and other public officials have been arrested simply for talking to journalists and one, April Casburn, has been jailed for raising legitimate concerns that anti-terrorism resources were being wasted on celebrity hacking inquiries.

Secret arrests, with those held not being named, are increasingly frequent. Whistleblowers, in the health service and other public sectors, have their careers trashed and are forced out with gagging orders underpinned by financial penalties for talking to the Press.

The biggest investigation in UK criminal history has led to the arrest of almost 60 journalists whose homes have been ransacked by police, whose most personal belongings are retained by the authorities, many of whom have been remanded on bail without charge for longer than terrorism suspects.

Even the Council of Europe was moved to call for an explanation of the Government-supervised destruction of a Guardian hard drive and the detention of Guardian journalist Glenn Greenwald’s  partner, David Miranda.

The Council’s secretary general, Thorbjorn Jagland, said the action could have “a chilling effect on journalists’ freedom of expression.”

In contrast to such controversial action, the revelation that insurance companies, lawyers, even councils and government departments may have employed private detectives to hack more phones and emails than newspapers has gone uninvestigated. Even the names of companies that used such methods are kept secret.

The death of their local paper, properly resourced, staffed by trained journalists, operating at the heart of their community is an issue that should concern every individual.

In a democratic country which claims to respect the rights and freedoms of the individual, it should concern those with the power to influence events.

There is no sign that it does.

If local newspapers, some of which have served their communities for more than a century, disappear, where will families turn when their elderly relative is mis-treated in hospital, when they fear their daughter is being groomed by a local gang, when social services exceed their powers to take away their child or fail to act on a tip-off of abuse, when police ignore the cries for help from a persecuted teenager, when out-of-hours medical care collapses?

One thing is certain. Monty’s editorless robots won’t be any help.

Chris Oakley has written a chapter for What do we mean by local?, a collection of essays published by Abramis.