Desmond's price war prompts slump in profits

Richard Desmond, the new owner of Channel 5, suffered a slump in earnings last year, partly resulting from his decision to spend tens of millions of pounds on a newspaper price war.

The Independent understands that the media mogul's ultimate holding company, RCD1 Ltd, made earnings before interest and tax (EBIT) of £14.5m in 2009, a fall of 67 per cent from the £43.3m it made the previous year. Northern & Shell Networks, Mr Desmond's publishing and broadcasting business, made EBIT of £13.8m in 2009. Profits before tax have fallen from £41m in 2008 to less than £9m in 2009.

In its annual report for 2008 Northern & Shell reported cash and liquid resources of £124.9m, which fell to £105m at the end of last year. In July it paid £103.5m to buy Channel 5 from the Luxembourg-based broadcasting group RTL. The media baron has pledged to invest £1.5bn in Channel 5 over the next five years and, despite the 2009 figures, sees the broadcaster as a long-term investment and remains committed to that plan.

The fall in earnings gives a further indication of the economic difficulties experienced by the publishing sector in 2009. It also shows theferocity of the price war taking place in the tabloid sector where Mr Desmond's Daily Star is competing with the News International market leader The Sun and Trinity Mirror's Daily Mirror. In 2009 Northern & Shell spent £52m supporting cover price reductions and discount vouchers, mainly for the Daily Star but also for the Daily Express, which competes with the Associated Newspapers-owned Daily Mail.

As a result of the investment, it is understood Mr Desmond's Express Newspapers business made a pre-tax loss of more than £15m last year, compared to a profit of £55m in 2007before the economic downturnundermined advertising revenues.

The Daily Star cut its price from 35p to 20p in November 2008 and this summer made a further reduction to 10p. The paper's circulation rise of 27 per cent is seen as a vindication of the strategy. Mr Desmond has spent a further £10m in improving the London printing presses used by histitles. He also owns a stable of magazines that includes the celebrity title OK! and his Portland TV business has a portfolio of adult television stations including Red Hot TV.

Mr Desmond, 58, retains greatpersonal wealth and, in an interview with The Independent earlier this year, said: "I've got so much money it's ridiculous."