Regional Press Under Threat

Carolyn McCall says ownership rules must change and the BBC must hold back if the regional press is to survive

Times are incredibly tough for most businesses and almost all media companies. But it’s also very clear to me that there remain opportunities for those bold enough to take them and many reasons to be positive about journalism in the UK.

One of those reasons is the nature of the owners of much of our national press. Take the Scott Trust, for example, the owner of the Guardian Media Group. The Trust is a totally unique form of ownership in the UK, and quite possibly the world. It has one, core purpose: to sustain the financial and editorial independence of the Guardian in perpetuity.

Our ownership model is unique, but look around and you’ll see other examples of owners whose world view might be very different to ours, but whose commitment to journalism is equally clear: the Rothermeres and, dare I say it, Rupert Murdoch, do so because they value journalism and believe it should sit squarely at the heart of political, social and business life.

Also, many publishers made early moves to evolve and adapt to the changing media landscape, to transform themselves into multimedia – not just press – publishers. So, although the national press is under huge pressure in terms of advertising revenues and readers, and although I think there will be some casualties in the not-too-distant future, I believe that the UK’s quality London press, as a multimedia industry, is in relatively good shape and a long way from being on its knees.

Sadly, I’m not convinced that the same can be said for parts of the regional press.

For years the big listed companies have insisted that the changes occurring in local and regional media markets were predominantly cyclical, not structural. In other words, declines in advertising revenues were driven by short-term economic factors and were reversible. This has been wrong for at least 10 years and is now universally accepted as such.

The changes are structural – they are permanent and result from fundamental changes in consumer behaviour, communications and technology. The situation is exacerbated by the current cyclical downturn, but neither the readers nor the revenues are ever coming back, at least not to anything like previous levels.

This is a bitter pill to swallow for businesses and shareholders that have enjoyed margins of over 30 per cent. But those days are gone. We have already seen local titles close and this will continue. Certain owners will struggle to continue in their current forms.

Many will criticise the owners or managers and blame them for cutting too hard, demanding unsustainable margins, downgrading the product, under-investing in journalism. This may or may not be true. The more important point is that the provision of local and regional news is becoming increasingly uneconomic.

The growth of the internet has not only decimated the staple diet of local and regional papers across the country – classified advertising revenues – it is detaching advertising from content altogether. Online search advertising doesn’t need to peg itself to any form of content, let alone journalism. Bluntly, the money that traditionally paid for highly skilled and qualified journalists, for printing presses, for offices, for newsprint, is for many simply no longer there – at least in quantities sufficient to support the business of journalism.

I am painting a somewhat apocalyptic vision, so let me quickly say that the death of the regional press is not inevitable. Or rather, there are ways to ensure it continues for a good while yet.

The principal barrier to the future viability of the regional press is the application of competition law around local ownership, which is stuck in a time-warp. In a world where Google accounts for 90 per cent of all searches in the UK, where regional papers are fighting tooth and nail for their very life against all-comers – online-only players, the BBC, search engines, commercial TV and radio, direct mail and other media – the idea that one publisher owning two very small local papers in the same area is monopolistic, or poses a threat to consumers and advertisers, is ludicrous.

The current approach doesn’t protect anyone, and by preventing consolidation within the regional press it threatens to undermine plurality and the provision of valuable public service content. Because if local papers disappear and ITV continues to retreat from its public service commitments, that just leaves the BBC.

A strong local and regional press is vital in a democracy – it’s a really important part of a properly functioning society. Just think of Wales without the Western Mail, of Yorkshire without the Evening Post, of Liverpool without the Echo. Who will hold politicians, councils and other authorities to account? Who will invest the time and effort in impartial newsgathering within communities? Who gives citizens their voice on all community issues – the very local included? It won’t be Google Local, that’s for sure.

The future for regional press must be about consolidation. Fewer owners, who are able to make savings through scale and compete on a more level playing field with other media, will result in a more sustainable model.

Regional newspapers will have to be reengineered completely – they will need to have significantly reduced overheads – costs will need to come out, staff numbers will have to fall, some titles will inevitably need to merge and close. Owners will have to accept much lower margins. This is unpalatable for journalists and shareholders alike, but it is the only realistic way forward.

The interpretation of competition law is actively preventing companies from pursuing perfectly sensible deals because they know previous efforts have been blocked. Local ownership regulation is a millstone around the neck of the regional press and it’s dragging the sector to the bottom. It is anachronistic, misguided and hopelessly out of date, and the issue must be addressed – legislation needs to change.

Another roadblock in the path of the regional press is the BBC, specifically its local online activities. At GMG we are great supporters of the Corporation as a champion of public service broadcasting and a hugely important fixed point in a shifting media landscape.

However, we have become increasingly concerned about certain of the BBC’s recent expansionary activities, which we feel are both inappropriate and damaging, especially at such a critical moment for the commercial media industry. So we find ourselves in the position of an aggrieved fan.

To focus on one example – the BBC plans to invest some £68 million, on top of existing investment in, in local online video. This is a huge figure in the context of the local media industry, and dwarfs the investment levels that commercial players are able to deploy. To give you a sense of the scale of the investment – it’s more than the total annual local and regional online revenues of Trinity Mirror, the UK’s largest regional publisher.

The BBC’s plans threaten not only to divert ever more traffic and therefore advertising revenue away from local commercial websites, but also to strangle at birth any kind of commercial market for local online video. The BBC does not do what it does out of spite. Much of the damage it inflicts on commercial markets is entirely unwitting. As the Guardian’s digital head Emily Bell says, the BBC is like a largely benevolent dragon, albeit one that can destroy entire villages with a careless swish of its tail.

We understand that the BBC is motivated by a need to demonstrate it is delivering public value. Making life even more difficult for the regional press, with the implications this has for plurality, is not delivering public value.

To conclude, the media is not simpl
y facing a period of crisis, but continuous change. Those that have adapted to new consumer behaviour by understanding their audiences, and those that are now reducing costs while continuing to invest in the right things, are the companies that will emerge ahead of their competitors when the economy picks up (whenever that is).

Carolyn McCall is Chief Executive of the Guardian Media Group. This post is an extract from her address to the Cardiff Business Club on 3 November 2008.

Carolyn McCall

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