Aug
8
The Strange Death of the British Regional Press
Filed Under Blog, Industry Analysis, internet, mobile content, news media, online advertising, Publishing, social media, Uncategorized, Workflow | Leave a Comment
“Well, they still make a profit”, said my friend. And indeed they do, but at what a cost! The few daily evening papers are now weeklies, and the weeklies are going free. Advertising and circulation are in monotonous annual retreat, and we were debating whether automated journalism, in the form of Narrative Science or Automated Insights, could be deployed to shave even further cost off these pared and scraped budgets. And would even that save them from joining Yellow Pages and telephone directories in the pulp recycling mill of history? Three hundred years almost exactly from the launch of the Daily Courant, I find this tinged with sadness… and anger at the gross mismanagement that speeded the demise.
An erstwhile colleague who does the numbers for a living provides this analysis of Enterprise Value:
Regional Press players (largest only, all in pounds sterling)
Trinity Mirror 308 m
Johnston Press 295 m
LocalMedia 150-200 m (based on current earnings)
Newsquest 400 m
In other words, an industry value of around 1.2 billion. Then he looked at the major classifieds players in the key regional press markets, and at their Enterprise Values:
Rightmove (homes) 3.36 bn
AutoTrader (cars) 3.86 bn
Total Jobs (now part of Axel Springer, so this is an educated guess) 800 m
In other words, the 7.9 billion pounds represented by these services is 6.5 X the regional press. And you can complain that we have left out Tindle or that the second or third level online services are not included, but it does not fundamentally alter the unarguable conclusion: the regional press has gone down the pan.
Perhaps that was inevitable. The tide of history. They did not see it coming. But the fact is that they did see it coming, they took very appropriate action, and still could not manage the outcomes. In 1995 my then company, EPS, was retained to come up with suggested solutions. This led to a project called AdHunter being hosted in our offices. The idea was to bring together online all of the classifieds from some 800 regional papers, comprizing 80% of UK regional press outlets. Within three years we had cracked the upload problems, built a database, and, with a brilliant management team, the project was launched on 13 October 1999, under its new title of Fish4 (Fish4homes etc). Within a year it was at least number 2 in these key markets, and probably the leading jobs site. I was still closely involved at this stage as Chairman.
Now stop history there for a moment, in the year 2000. If, as my analyst friend indicates, the regional press players, who had all invested both capital and content in this activity, had continued along this track for another fifteen years they would have had an asset, even if it was No 2 in these markets, worth around 75% of 6.5 billion. (And, with commiserations, he reminds me that the listing, when it came, would have yielded the Chairman 60 million!) So why did the newspaper companies fail to follow up this initial breakthrough and create a self-sustaining future online – or even turn into Schibsted or Axel Springer? Basically, for a few simple reasons which were not obvious at the time. They did not know who their customers were, they did not know anything about the behaviour of their readers/users beyond the fact of purchase. And they had no conception of who the competitors were, insisting to the bitter end that other newspapers, and especially their co-investors, were the old and ever present enemy.
This latter characteristic became the bane of my life as Chairman, and after five years I was glad to escape the board room wrangles about who was doing better than whom from the original deal. Investment decisions became trapped in jealous debate, with the farce factor re-inforced by the fact that all of these newspapers were local monopolies, fiercely guarded but without, except in three small towns, more than one newspaper in each community. But the obsession was the idea that a rival group might use the service to grow at the expense of the others: the threat of AutoTrader moving out of print, or their estate agent customers forming their own service, or of Monster eating their breakfast, seemed to be of no consequence alongside this fear.
And they did hate their customers. Estate agents and used car dealers and the jobless did owe them a living. I recall vividly one regional managerial grandee, when it was suggested that we might secure our positioning in the car market by distributing free software for managing inventory and uploading selected vehicles for sale to our site and the local newspaper, expostulating that all car dealers were crooks and criminals, and he had no intention of sanctioning investment to subsidize their nefarious practices. Estate agents were equally wicked, so it was a real shock that a service derived from the market – how come estate agents could collaborate and newspapers couldn’t? – eventually supplanted them. And they saw absolutely no benefit in the fact that an online searcher could search regionally or nationally to great advantage, and that selling this advantage to advertisers was worth a premium.
Only one “manager” of that period now remains in office, and that is the Chairman of DMGT, Jonathan Harmsworth, who inherited his father’s position during this period . He has arguably learnt the lesson, since he sold the group’s regional holdings and has concentrated his company in B2B data services markets. But I often think of Jonathan Turpin and his brilliant management team at Fish4, who were denied the opportunity to shine by obscurantist and blinkered investors. And of an industry which never did accomplish the re-invention of “local” in the network, a task which still remains to be achieved in a smartphone world. I am often told that it is the BBC who destroyed the regional press, or the advertisers, or even the government. But the truth is simpler: management climbed inside the bunker and pulled the roof in on their own heads.
Jul
27
For “Never” read “When”…
Filed Under Big Data, Blog, Education, eLearning, Financial services, Industry Analysis, internet, mobile content, news media, Pearson, Publishing, Uncategorized, Workflow | Leave a Comment
Long years as an observer of information and media marketplaces have underlined one critical finding: whenever you hear someone say they will never sell an asset, you should be thinking about the circumstances under which they will sell it. I have long applied this thinking to Pearson, or at least since the early days of Marjorie Scardino, since she was so evidently pursuing the meatstore strategy for portfolio decomposition. Under this strategy you first detect the core strategy, in this case the pursuit of education markets globally, and then subordinate the other holdings to that strategy, only investing in non-core where you wanted to ensure that asset values were maintained. Then, every time you needed to make a strategic acquisition, you reached into the meatstore and sold a non-core unit, allowing strategic expansion without heavy debt and encumbrance.
This strategy has moved Pearson from being a collection of brands inherited by Scardino from the family of Lord Cowdray into the largest global force in education markets. It has brilliantly funded strategic purchases like Wall Street English. It has enabled the move from education content to services and now to solutions. It will yet see Pearson emerge as a major global force in online schools and institutions as well as accreditation and content: in a networked world it will be possible to be both a solution, and a supplier to competitor solutions, and a traditional service supplier as markets mature at different speeds and distance or location become less important than measurable quality in educational outputs.
Yet, for all its size, Pearson is still a small player in a large marketplace. And the market is still not fully networked or global, but slow, conservative and locally prone to government spending reduction or cultural differentiation. The downturn in the US disrupted Pearson’s banker market at a time when investment in rest of world markets was the key focus, and slow recovery at a time when governments are getting wise to how to leverage outsourcing, especially in testing and assessment markets, has affected growth and reduced margins. For the first time it may be possible to say that Pearson is shedding non-core assets not to buy strategic positioning but to buy time to allow growth strategies to unfold. This is a new take on the meatstore strategy.
In one real sense the sale of the Financial Times to Nikkei and the currently projected sale of the Economist Group must be good news for all involved. While the Economist had always been managerially independent, the FT had the potential to be a distraction, both in terms of investment needs and managerial time. And the FT, one of the few newspaper groups in the world worth buying, like the Economist, is in part a truly consumer-facing venture. As Pearson has found as it moves into consumer end-user educational markets, the business of selling to consumers is different from institutions. And managing operations that do both is difficult. And indeed structuring the management reporting lines of global consumer/institutional sales and marketing alongside the need for both vertical and global IT strategies is a taxing one. Clearly the two major information corporations who drew on Deloittes in recent years to create global matrix management schema are only in the very earliest stages of getting this right. Increasingly managing process and change is becoming as great a disruptor as technology or markets.
And it could be argued as well that under Pearson’s management the Financial Times has accomplished the huge transition that was required of it, and emerged as a digitally-led business. OK, it’s not a very big nor a very profitable business, but the world must get used to digital information businesses being smaller, and taking time to build margins. Dropping costly print would help, of course. And in the age of automated journalism it may be over-manned, but in that case it has gone to the right home in privately-held, hugely over-manned Nikkei, who will have the patience to see the job through while respecting the tradition. As a bid to move Nikkei off its domestic Japanese base into global markets the move carries less conviction since this is a trick which few Japanese information businesses have managed, but it may be that this is an opportunity for FT management to continue their global brand building in a market where Dow Jones seems to offer less competition than it did in pre-Murdoch days.
Back at Pearsons too, the ball is clearly at management’s feet, since they cannot plead lack of resources once they have completed the disposal of the FT and the Economist, and only have their minority position in Random House Penguin left in the meatstore (though arguably that deal could not have been done without the retention of that stake, so this may not be an active asset for the time being). Can they find an answer to ongoing tests market issues in the now hugely competitive US market (note the sale of the service side of California Test Bureau by McGraw-Hill Education this month). Can they sort the growth prospects in Latin America and make sense of those difficult trading economies? Can they re-align western Europe and exploit the private education potential there? Can they still grow rapidly in China while getting into smartphone dominated markets in India and elsewhere in the region? And all this at speed, using English language learning as a spearhead but not as the sole destination? Well, they have the management talent, though they may not yet have the configuration to make it gel. And they have the technology, though they need to be able to concentrate it on uniform platforms that allow rapid new product iteration. And now, sans FT, they have removed the distractions. The next year is thus critical.
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