The future of newspapers – beware the merchants of doom

When it comes to UK media shares, the gamblers on the stock market are playing blind poker.

That surely is the only explanation for the crazy values allocated to media companies. It seems marketers are set on forcing share prices to rock bottom, presumably so they can swoop to buy them and reap big profits when reality sets in again.

It is the only answer because most of the newspapers owned by those companies currently so unpopular on the exchanges are not about to go out of print. They are robust and maintain attractive cash flows despite severe challenges to revenue streams from both changes in the media marketplace and global economic slowdown.

If the demise of newspapers in the familiar format that well over half the UK population still read every day is imminent, why has Rupert Murdoch invested nearly a billion pounds in a new print complex for his British titles? Are stock market punters foolish enough to second guess the world’s most successful media operator?

Bear in mind that even more people enjoy reading the country’s 1,300 or so local papers every week. They are ingrained in our culture and, despite current gloom, they will still be reporting our misdemeanours, recording our achievements, telling us where to pick up bargains and settling our arguments for many years to come.

Of course, some pretty big readjustments of revenue streams are underway. Yes, newspapers missed the first opportunities thrown up by the internet. But now, not only have they jumped on the bandwagon, they are writing the best new tunes and conducting the music.

A solid base

The UK newspaper industry has firmer foundations and qualities that go both deeper and wider than those in the USA and it is the strength of the financial figures from across the Atlantic that offer a better vision than some of the superficial and gloomy views of prospects for the American newspaper industry.

Cable networks, television and movies may have powered a 59% surge in annual profits at Murdoch’s News Corporation but profits from its newspaper division rose by $114m to $767m.

Global profits jumped from $3.4bn to $5.4bn in the year to June and Murdoch said: "Although we clearly face more challenging macro-economic conditions in fiscal '09, we're well positioned to deliver continued, if somewhat less robust growth."

And he added: "That the newspaper sector is changing is clear but companies willing to invest in new forms of delivery, which have a commitment to quality, will prosper."

That was echoed by British regional newspaper and magazine publisher Archant as it announced better-than-expected half-yearly results with revenues down only 3.3%.

Board level optimists

Company chairman Richard Jewson remained cautious about the economic outlook but he said: "The company has a strong balance sheet, market leading brands and is well positioned to weather the economic storm."

Circulation figures have been dismal, particularly for regional daily papers and there is some painful restructuring underway. However, Trinity Mirror and Guardian Media Group reported continued strong growth in regional online traffic and revenues.

Sly Bailey, chief executive of Trinity Mirror, which suffers more than most from the share price debate, said that a programme of technological improvements to achieve £20m of savings alongside continued investment to build digital revenues "will see the group through this economic downturn and best position the business for growth when market conditions improve."

The GMG annual report said that although profits obtained from its regional newspaper titles had been affected by the advertising slowdown, with declines in classified advertising of 8.1%, in-paper display advertising profits maintained strong growth.

In addition, income raised by its total regional digital media portfolio and Manchester TV station Channel M rose 6.4% and 44.7% respectively.

Chief executive Carolyn McCall said: "GMG Regional Media continues to be a leader in its markets. While trading conditions have suppressed financial performance, the business has the potential for future growth and remains a strong, profitable asset."

At the same time, Guardian.co.uk became the first UK national newspaper website to break 20 million unique users a month. Audiences are made up of readers in all formats, not just those who buy the print version and therefore contribute to circulation statistics, which are a narrow and increasingly outdated measure of performance.

WAN’s message

Meanwhile, the ‘Get the Facts About Newspapers’ campaign from the World Association of Newspapers released its third advertisement for use by publications to help counter negative myths and misinformation about the industry.

The new advertisement carries the slogan, "We’ve done the search. You only have to turn the pages", and explains that the world newspaper industry connects with 1.6 billion people of all ages, all creeds and all races each and every day.

"We produce strongly branded products of different shapes and sizes, of varying quality, of different political hues, and deliver those products in various guises," says the ad.

"Print is the world's largest advertising medium, with a 42% share, and advertising revenues in newspapers alone exceed the combined total of radio, outdoor, cinema, magazines and, yes, the internet."

One of the two previous advertisements, ‘The Good News - guess who gets 1.6 billion hits a day?’, takes advantage of one of newspaper advertising's inherent strengths – the power of persuasion - and offers a compelling argument about why print is here to stay.

The other ad pokes fun at the doomsayers, quoting some of the funniest and silliest things ever said by public figures and leading to the infamous "newspapers are now an endangered species" quoted by the Economist last year.

Well placed to fight back

There are consistent messages in all of this.

First, newspapers, along with the rest of the media, have to adapt to the changing demands of audiences. Second, technology is providing the means to meet those challenges.

Third, newspapers are powerful trusted brands that are capable of winning back audiences from newcomers who initially took advantage of the new medium of the web to offer attractive and different packages to increasingly demanding audiences.

What is becoming clear is that those trusted traditional media brands, each with a wealth of creative talent and determination, can not only compete with the new media carpetbaggers but they can face them head-on and beat them at their own game – and any new games still to be invented.

Newspapers have a special advantage in that they can promote the web, text, mobile and "whatever next" products they create in ways that web-only operators cannot. They can also use their new platforms to cross promote their newspapers in return.

The key, however, is in the fourth message from those big players quoted above.

Their companies are well-founded and will be well placed to benefit when economic health returns so long as they invest – in technology that can create new platforms and, crucially, in the creative talents of their staff.

In essence, they have to remember what their businesses are about. And for that they need look no further than Mr Murdoch and Lord Rothermere, who heads up the UK’s most successful media company of the past half century.

Value of journalism

It is the editorial menu that attracts audiences. Content is king and never forget it.

In hard times, editors and journalists in Murdoch’s News International and in Associated Newspapers and its regional cousins have to exercise budgetary restraint as much as anyone but the message from on high does not falter. As one of Rothermere’s forebears made clear, it is not the ad department and the accounts department that maintain the family fortune, it is the skill and creativity of journalists who design and maintain the platforms for raising revenue.

As advertising activity declined with the slowdown, it was interesting to note that in the Murdoch empire it was the ad department that had to reduce staff and realign teams – not editorial.

Clever media organisations see journalism for what it is – the key asset of the business rather than an annoying cost that can be trimmed as required without dangerous consequences.

I would say that wouldn’t I? But those organisations that fail to follow the virtuous circle of quality content that attracts audiences that build platforms for revenue, are indeed doomed.

The vicious circle that follows from inadequate, poorly targeted editorial, leads to no audience, no platform for cash, and ultimately no business.

Focus on the long term

Asked to write an essay on the future of coal, Orwell was reputed to have written one word: smoke. The danger is that the same word could sum up the future of UK newspapers if too much notice is taken of the current state of media stock values.

Ah! Could that be why share values are being written down? Are the markets concerned about under investment in editorial? I wish they were, but I doubt it. They are notoriously fickle and seduced by short terms returns.

There is clearly something in the notion that newspaper companies owned or at least dominated by the longer term vision of individuals do better than those that rely on market funding. It is certainly true that those that focus on the basics of producing the best possible editorial for their market are the ones that thrive and survive.

That notwithstanding, media chiefs could do worse than examine British success at the Beijing Olympics. That was based on the nurturing of superb talent and sustained investment of Lottery funds in the necessary sporting technology.

As a result, 2008 was the best for Britain for 100 years and the prospects, backed by still more investment in quality and kit, could be better still for London 2012.

This may not be a good year for newspapers – except when they report and celebrate Olympic success - but if they follow the Team GB example, 2012 could be a golden year all round.