Mergers and acquisitions

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

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If the newspaper business is doomed, why is Johnston Press paying £24m for the i?

Whether you read, or were a fan of, the publication in question or not, the closure of a national newspaper is always an event, and a cause for reflection. First of all, it’s a relatively rare occurrence; and secondly, anything that reduces the size of the pool, or shrinks its diversity, is something that anyone who values a competitive and diverse press pack will worry about. And of course there are the job losses.

The past six or seven days have been pretty remarkable for anyone who takes an interest in our newspapers. Evgeny Lebedev, who runs a media empire consisting of the Independent, the Indy on Sunday, the Evening Standard, the i newspaper and TV station London Live, last week announced the closure of the print versions of the two Indy titles (with the loss of about 100 jobs), as well as the sale of the i to Scotsman owner, Johnston Press.

The final edition of the Independent will be published on 26 March; the Sindy, 20 March. It’s a sad end to the Independent’s near 30-year story. Founded as a non-partisan broadsheet by Newspaper Publishing PLC in 1986, it’s been through countless owners and relaunches, has often struggled, but has also frequently punched above its weight, outsmarting its bigger, better-funded rivals.

Who can forget the superb 'The Independent. It is. Are You?' launch ad campaign, which helped the paper set out its stall as a slightly left-of-centre, classically liberal broadsheet? It was designed to challenge the Guardian for readers, which it certainly did – within three years of launch it was selling well over 400,000 copies a day. Its innovative design, marketing and general approach prompted a shake-up (and, I think it’s fair to say, a general improvement) in the broadsheet sector.

However, compared to its rivals, the Indy was always the runt of the newspaper litter, and it inevitably struggled with many owners and editors over the years. By 2000, the daily’s sales were below 200,000. However, its travails forced it to be innovative – making clever use of bulk copies, the downsizing to a tabloid (copied by The Guardian and Murdoch’s Times) and those striking and often brilliant magazine-style 'viewspaper' campaigning front covers.

But nothing really worked, and the tectonic shifts in the public’s reading habits proved to be the straw that broke the camel’s back. Everyone knows that newspaper circulations have been falling for two decades, and it was common knowledge that once the bulks and freebies were stripped out, both titles were selling around 40,000 copies each issue. That’s just not sustainable: printing and nationally distributing newspapers seven days a week is a costly and labour-intensive business. In fact, it’s been said many times that the cut-price i (of which more shortly) was keeping its older, bigger siblings afloat.

The Independent brand still has value, however, so it makes sense to retain it online (although most people I’ve spoken to have agreed with me that money has to be spent improving the Independent website and apps, which are badly designed, ad-heavy and buggy). Lebedev has pledged to keep the papers’ big draws, such as Robert Fisk and Grace Dent and spend money on foreign bureaux and specialist departments. It’s thought that he and his oligarch father Alexander have spent £65m on the two papers over the past five years, and the freeing up of resources, plus the £25m or so he’ll get for the i, will hopefully be reinvested.

Lebedev has – almost inevitably – been much criticised in the past few days. Some accuse him of being obsessed with the Standard (which makes a profit of about £2m a year) to the detriment of the national titles, because it provides a way into London society and the Indy and Sindy do not; of wasting millions on his vanity project, the widely-mocked and largely unwatched London Live (which he maintains will break even next year); and of being cavalier with his employees’ livelihoods.

A lot of this criticism may be justified, but I also wonder whether Lebedev has merely been the first to bow to the inevitable, and is just doing what some of his fellow proprietors have been wanting to do for some time. Rupert Murdoch, despite having newsprint running through his veins, has always been deeply unsentimental (although he does have a very soft spot for the Sun). He closed the News of The World (the first paper he bought in the UK) in 2011 when it became a toxic brand, and Today in 1996 when it ceased to make money. When his papers stop being profitable and/or influential (or when Murdoch, 85 next month, dies), they will go, or mutate into something else (more of this in a minute).

Richard Desmond, who’s even less sentimental than Murdoch, will probably close the Express titles once he has extracted every last penny of value from them. The loss-making Guardian and Observer’s operations will merge sooner rather than later, and the venerable Observer name will possibly – and sadly – disappear from the newsstands. It’s hard to see Trinity Mirror continuing to prop up the ailing Sunday People, and how much longer will the Barclay brothers hang on to the Telegraph (only last week the twins were said to be gauging interest in a sale of Telegraph Media Group)?

The trouble is, the profits made by online efforts (even at the Mail, which is now the world’s most-viewed online newspaper) do not make up for the losses incurred by print. News online is now commoditised, and usually available for free, so unless you can offer specialist news – as the Financial Times does – it’s very difficult to make money, unless you think seriously about ditching the print products.

Of course, most newspaper owners through history have not bought or started up newspapers because they wanted to get rich. The likes of Murdoch, Beaverbrook, Black, Thomson, Astor and Northcliffe were proprietors because they wanted influence. However, it’s arguable that newspapers are becoming less and less important to both the general public and the political class; and with an entire generation about to become adults who’ve never even read, let alone paid for, a newspaper, the power of print will continue to wane.

But I believe that print does have a future. As anyone who’s tried to go online on a train journey, or in some of our rural areas, or who travels by plane a lot knows, there are times when only ink or paper will work.

Specialist print magazines and hyper-glossy premium titles are motoring along nicely; and free titles, such as the Metro, Standard, Shortlist, Sport, Time Out and Stylist are all doing well, with – as the latest ABCs demonstrate – healthy circulation/distribution figures and decent ad sales. So specialisation and free both work. The free model adopted by the Evening Standard in London would be far too costly to replicate for national newspapers – but there is another model, that of the Lebedevs’ i.

The i – which many observers believe takes a lot of its looks and internal architecture from the internet – was launched in 2010 as a cut-down version of the Indy, selling for just 20p and providing commuters with just enough, but not too much, content in an attractive format (much of it sourced from its sister papers). It was more highbrow and far better than Metro, but just as accessible, and was unsurprisingly a hit, with a circulation of 270,000 (200,000 paid-for newsstand copies, the rest freebies and bulks). It could be how the print newspaper will look in 10 or 20 years’ time.

No wonder Johnston Press (owner of around 220 local titles, including the flagship Yorkshire Post and Scotsman) paid £24.4m (about 4.6 times the title’s unaudited operating profit of £5.2m) for the title – in some ways it’s the most attractive print newspaper out there. Johnston has come in for criticism for shelling out millions on a new title when it’s been laying off staff and making swingeing cuts for years now, but the acquisition gives it a national paper – and presence – for the first time.

CEO Ashley Highfield actually deserves a bit of credit, both for his ambition in buying a paper, and for being willing to invest in it. He’s already said that around 34 new jobs will be created, a new website will be launched (the i doesn’t currently have its own, so JP will launch www.inews.co.uk) and a new edition of the paper will be launched in Northern Ireland.

And Johnston is getting a good product. The i has won lots of awards and is popular with students and young employed people, as well as 50-plus males living outside London, so it’s attractive to advertisers. Synergies can be also be drawn – printing it from its own presses rather than Trinity Mirror’s, using Johnston’s strong distribution network, utilising existing news desks to source content and sales steams for advertising.

Highfield says that i will 'transform' JP’s business; I think that’s overstating things a bit, but it will certainly aid the CEO’s efforts to overhaul what was seen as a rather moribund publisher.

Ironically the first national newspapers to be killed off by the internet spawned the first to be inspired by it, and the newly-adopted poster child may go on to do very well.

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector

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