There’s an office in Scotland where 30 people read Business am every day of the working week. That’s great news for the Scottish business and political tabloid that celebrated its second birthday a few weeks ago, until you find out that, while the 30 staff may read Business am, only one of them, the managing director, actually pays his £195 to subscribe for the year. They all share the one copy, which is not an uncommon phenomenon, it would seem.
And therein lies the problem, a problem which, two weeks ago, saw Business am’s parent company, Bonnier, announce that it was necessary to identify a partner willing to invest in a joint venture to sustain the title.
Journalists writing in other newspaper titles revelled in the fact that the new kid on the block was already looking for additional financial support, as its circulation has remained static at around 11,200 this year and not climbed to the 13,000-plus mark, as estimated by its bosses.
The angle being taken by the newspaper industry itself is almost unanimous.
“Is looking for a partner not a euphemism for ‘we are for sale’?” asks Mark Hollinshead, managing director of the Scottish Daily Record and Sunday Mail. He adds: “Bonnier has sold off other titles in Europe, which have been break-even titles, so to sell Business am would not be that outlandish. Bam has lost £5m in the last year. My view is that if they receive a buyout offer they should consider it.”
However, while many in the newspaper industry, like Hollinshead, are already seeing the “For Sale” sign going up at 40 Torphichen Street, Business am’s managing director, John Penman, is adamant that the title is not for sale and that its break-even target of 2005 is still achievable.
He says: “In June, the Bonnier board expressed some views about our development that would mean that more costs would be incurred. They said that they wanted to re-examine where Business am was when we came to present for our budget for 2003. At the end of September, the Business am board met and the decision to appoint Lazard to look for joint venture partners was taken.
“This is not an unusual situation. It has happened before. Bonnier’s Austrian newspaper is a 50/50 joint venture, as is its Slovakian newspaper.”
“We are looking at where there are other options and other areas for Business am to go next. There might be a solution other than a joint venture. This is not going to be a long process. Once the process is completed Bonnier will have made their minds up whether or not they want to carry on. They will have decided whether a partner is the right move or whether there is another viable solution. We are looking to have things in place for next year, so we need to have things sorted out by mid-November.”
According to speculation, potential investors are being asked to invest between £8m and £10m to see the title through to break-even in 2005.
So, just which companies could be interested in entering into a joint partnership with Bonnier to safeguard the immediate future of Business am?
Obviously, Penman is remaining tight-lipped about the parties involved, but played down any mention of a potential management buyout.
Speculation will obviously suggest that Trinity Mirror, owners of the Daily Record and Sunday Mail, could be interested, as the Business am project was initially touted as a joint venture between The Mirror Group and Bonnier, until the Mirror was acquired by Trinity, leaving Bonnier to go it alone.
However, Hollinshead denies that they would be interested in bringing Business am into its stable, which already comprises Scottish Business Insider: “No, we would not be interested in Business am. Our view was that it should have been a broadsheet weekly title giving an intelligent review and preview of the big business and political stories in Scotland.
“Business am has carved a great editorial niche in the marketplace and it is certainly on my, and lots of other people’s, daily reading list and it would be a real shame if it disappeared, but to keep it going it needs major surgery.”
Another party that might be interested could be the acquisitive Guardian Media Group. The group is expanding in Scotland through radio with Real Radio and was touted as an early bidder for the SMG newspaper titles. However, its bid is now believed to have fallen by the wayside.
What about The Scotsman Publications, also currently embroiled in the battle for SMG’s newspapers?
Steven Walker, managing director of The Scotsman Publications, says: “They have not approached us. I will always listen to an approach from anyone, but Business am has not contacted us. If they are looking for a partner to put in up to £10m then you have to ask, where is the evidence to support it becoming profitable in two years’ time? That is what they will have to try and demonstrate to any potential partner. Everything has potential, but putting a value on that potential is tough.”
One thing is for sure, the SMG newspapers sale that has hogged most of the media headlines for the last month has done Business am no harm, as it looks to attract outside interest. Groups such as Archant, Gannett, Candover and Providence Equity Partners have all sidelined funds to invest. When the cookie crumbles and the Herald, the Sunday Herald and Evening Times are sold, there are going to be a number of publishing groups with money still to spend. But would a business daily be the kind of venture in which they would want to put their money?
Penman says: “We have received interest from people who were interested in SMG. Bonnier had looked at SMG, but decided against it. There is a real focus on Scottish media at the moment, so it has been easy to get attention from publishing groups. In both cases the one thing is that we are smaller than SMG so this deal will be completed quicker.”
It seems that the fundamental problem faced by Penman and his Bonnier bosses is, how do they persuade/encourage/force (delete as you think appropriate) each of the 90,000 people who read Business am every week to actually dip into their own pockets, purses or wallets to buy their own copy?
It is the same challenge faced by this magazine. Because it is primarily sold on subscription to businessmen and women, it goes into office reception areas and, on average, 4.8 people read every copy. The trick is to get those 4.8 people to buy their own copy.
However, the major difference between Business am and The Drum is cost base. The Drum doesn’t have an office with 95 editorial and sales staff along with a call centre with 30 staff – well, not at the time of going to press.
Hollinshead says: “If anyone really looked at the books at the moment I would think they would be put off until the management can get the cost base under control.”
Walker agrees: “They were warned before they started that it would be tough. Everyone who has worked in the commercial arena said it would be a very difficult model to make work. It is that which has let them down, really, the commercial side of things, as the product is good.”
However, accusations of overstaffing and overspending are strenuously denied by Penman.
“We took £2m out of the cost base last year when we made some redundancies,” he says. “Editorial, which is the department people always point to, their costs are down by £1m. In fact, editorial budgets are what we had agreed three years ago when it was a joint venture with Trinity and Bonnier. So we have reduced our cost base.
“We have 59 staff journalists, 23 of whom are writers. We cannot rely on news agency copy. Most of our stories are sourced by us. If all the journalists at the Herald went on strike, the editors would still be able to put out a newspaper, as they would just use agency copy. We could not. We have people in Edinburgh, Glasgow, Aberdeen, Inverness, Brussels and Washington because I believe that you need to be able to cover these markets if you want to cover Scottish business. It is never going to be cheap to produce a business newspaper and anyone who thinks it can be will not make a very good newspaper.”
Last November, Business am boss Penman was forced to cut a dozen jobs and make changes to the editorial structure. So, how has this latest bombshell affected morale of the paper’s staff?
Penman says: “There is some concern within the staff, but we have a culture of openness and we tell the staff what is going on, fully knowing that the stories will get out anyway. I have been keeping the staff informed as much as I can. We were doing monthly updates anyway and I have always impressed upon all the staff that we are still a start-up business and therefore there are always risks. Our people have always known that, but we have a very low turnover of staff. Morale has been very high in general and we have to keep our people focused on the job at hand.”
And Penman and his editor, Richard Neville, are very much focused on that job at hand – that being getting more people to fork out the £195 annual subscription rate or 95p at the newsstand.
He says: “I am still very committed to the subscription model. I was recently at the Boston Globe, which sells 500,000 copies a day on subscription, so I know that the model can work. They have a great control of their product and what they can do with their subscription base and advertisers. I am convinced that subscription is the way forward for newspapers. At the moment UK newspaper publishers just put a pile of newspapers in a shop and hope that people pick them up. We are still at the stage of trying to persuade people to buy our product by giving them a free boating holiday. It has to change in the future and I believe that subscription is the way. The key is developing a UK model. The European model does not work in the UK. We have adapted that.”
And what of the office where 30 people all read the same copy? How does that fit into his plan?
“How do we get readers of the newspaper to want their own? That is the real issue that we face,” says Penman. “I believe that the content has to be broader. Richard Neville has begun to do that since taking over as editor and he is continuing to look at ways he can broaden the newspaper’s appeal. It is a quick read, but we need parts of the newspaper to have what I call ‘stickability’, parts that make the readers save it to read later. We have some long-term views on how we can do that.
“I want to do sports coverage and expand the PM section. We have got better oil and gas coverage now and we need to do more public sector stuff. We also need to beef up our political coverage. People tell us that we do it well, so we do need to do more. Our audience is very high level, mainly B1s. We get right into the boardroom. We need to get the middle managers to want their own copy.”
Hollinshead agrees that more people need to buy the newspaper, but disagrees that the type of radical circulation increase needed will come about through subscription alone. He says: “There is a very dogmatic view within the Swedish owners’ minds that subscription should be 100 per cent and no other distribution channels should be pursued. It was an interesting experiment, but it needs to be on newsstands and very visible so that you could try and decrease the number of readers per single copy. They then need to explore the mainstream distribution mechanisms, such as newsagents in their target areas.
“The editorial is fine, but the marketing and commercial development leaves a lot to be desired. They need to think laterally about how they move into the mainstream.”
Walker agrees: “I would be tempted to see if they could sell more through the news trade. We get one copy in here and everyone flicks through it. It is a good product, but I do not think that it has built up a personal relationship with readers. People feel that it is for business so they get it at work in the office because it is for work. Lots of people have PCs at work, but do not have them at home because a PC is part of their work life and they do not want to take that home with them. It is a very niche buy, it is not a pleasure buy. The last thing people do is look round the office for the Business am to take home in the evening like they would the Scotsman or the Herald. They really need to make people think of it as their paper, but I am not sure how they do that.”
So, what of the future for Business am? Penman says that the process by which a partner will be found or not, as the case may be, will be concluded within the next three weeks and as long as any partner shares his vision for the paper then the infant should make it to primary school age at least. Whether an MBO is viable – time will tell.
As for Penman, the last two years may not have been as straightforward as his business model may have suggested, but he remains happy to be in the hot seat: “I am still enjoying the job of managing director, very much so. I have been involved with this project for the last four years, working out of a small office on the top floor of the Daily Record’s old offices. To have got from there to here is the most rewarding thing I have ever experienced in my career. I do not interfere with the editorial content at all. In fact, I am going to drop the editor in chief title soon because when people ask me what an editor in chief does I have to say, nothing.
“Our key priority is to achieve break-even by 2005 and we are still on target for that. But the cost of getting there will be a lot. When we do get to a stage when the business is secure we will then start to look at other developments for the newspaper. The potential for Business am is enormous. The original vision was of a national newspaper with regional editions.”