Can Lord Rothermere be serious? Older hands at rival regional newspaper groups sucked their teeth and shook their heads somewhat thoughtfully last week when it emerged that Daily Mail & General Trust was considering the sale of its regional newspaper division, Northcliffe Newspapers. Some observers likened this to an unsentimental heir unceremoniously selling off some of the family silver.
But the proprietors of DMGT are not universally noted for their sentimentality.
And it can be argued that the rise of online media makes regional press look increasingly antiquated as a medium.
The line from DMGT is somewhat subtler, however. The company is considering this sale following a root-and-branch review of the Northcliffe Newspapers assets, called Aim Higher. Initially, this was expected to look at ways to cut costs, but in the end it focused on a somewhat bigger picture.
According to the DMGT finance director, Peter Williams, the company realised that to meet its objectives, it would need to take the lead in continuing consolidation within the medium - and it was not willing to contemplate spending the sums needed to buy regional newspaper assets these days.
Stark logic thus began to dictate that it had no business staying in a game it wasn't prepared to play to the utmost.
Thus the For Sale sign, which is reported to have attracted interest from venture capital groups led by the likes of the former Trinity Mirror chief executive David Montgomery. This rhetoric is, of course, somewhat self-serving. It paints a picture of a hot market where assets are snapped up quickly at a premium. Ironically, though, the announcement may send very different signals. Some will start to wonder, if DMGT, arguably the UK's most skilled newspaper publisher, can't make a go of regional papers in the 21st century, what hope can there be for anyone else?
1. Included within the ranks of the regional press are some of the country's oldest media assets. The Newcastle Journal launched in 1832, the Liverpool Daily Post in 1879, the Birmingham Post in 1857.
2. Northcliffe, then, is a relative newcomer to this business - the first Viscount Rothermere founded the division in 1928.
3. The market consolidated throughout the 90s, when the likes of Thomson Regional Newspapers, Reed International, Pearson, Emap and United Newspapers all bowed out.
4. There are now five major regional newspaper publishers in the UK. The market leader is Trinity Mirror (with 228 titles and a 20.3 per cent share by circulation) followed by Newsquest (216 titles, 18.4 per cent share), Northcliffe (110 titles, 15.9 per cent share), Johnston Press (241 titles, 14.7 per cent share) and Guardian Media Group (43 titles, 4.5 per cent share). A Competition Commission inquiry will be triggered when any of these groups exceeds a 25 per cent market share by circulation. This will make the next round of consolidation a tricky business, with some horse-trading involved.
5. Although Northcliffe's recruitment revenues were down year on year in the results to September 2005, the division remained a strong performer and, perhaps ironically given the Aim Higher review, continued to be DMGT's strongest division in terms of profits performance. In the September figures, it turned in a 拢102 million profit, up 拢1 million year on year. In comparison, Associated Newspapers' profits were 拢95 million.
6. Many observers predict that regional titles will lose even more recruitment advertising to online publishers when the next upturn comes. Others argue that the hardcore readership of regional titles (and especially those likely to respond to recruitment ads) remains relatively internet-illiterate. They add that the most successful operators of local-interest online operations tend to be the regional publishers themselves - they have the accumulated knowledge base to make the best of the market.
7. A recent report from Mintel also suggests that the medium is in robust health and can face the future with confidence.
8. Many City sources suggest that private equity groups may be the likeliest bidders - with a view to a break-up and resale. Possible candidates include Apax, Candover, CVC and KKR.
WHAT IT MEANS FOR ...
DAILY MAIL & GENERAL TRUST
- This will be seen as a continuation of DMGT's determination to diversify away from the less glamorous traditional media sectors.
- This may also be a tacit acknowledgement of how expensive it will be for the group to continue to defend the position of its flagship publishing asset, the Daily Mail.
- Reports suggest that DMGT is considering a bid for GCap, in which it already owns a 15 per cent stake. Funds from the sale of Northcliffe could prove handy if this happens.
RIVAL PUBLISHERS
- This is something of a headache for the likes of Trinity Mirror, Newsquest and Johnston Press - Northcliffe's closest rivals to date. In theory, they would all love to bid for some or all of Northcliffe's assets.
- Northcliffe's management say it would be too complicated to break the group up before a sale; and if Trinity Mirror, Newsquest or Johnston were to attempt to swallow it whole, a Competition Commission inquiry would be triggered.
- Doubtless, they will hope that a venture capital company comes in and begins selling it on again in piecemeal packages. Their worst fear will be that a powerful new media owner will enter the market and begin taking the consolidation game to them. Meanwhile, they must worry that DMGT's announcement will dent confidence in the entire sector.
ADVERTISERS
- Whatever the other major regional publishers say to the contrary, this is a blow to the image of regional press as a medium. It will focus attention on the potential for online media to erode the power of regional newspapers, both as a source of local news and as an advertising medium.