End of price war gives industry hope

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The Independent Online
A radical restructuring of Britain's newspaper market, launched yesterday with the closure of Today, will give the declining industry its first breathing space for three years.

While cost-cutting is likely to continue, the demise of one newspaper and the apparent end of the debilitating cover price war will together improve prospects throughout Fleet Street.

Sharp increases in newsprint prices - 40 per cent last year, with up to 15 per cent more expected in January - have badly squeezed profit margins across the industry. The price war, launched in mid-1993 by Rupert Murdoch's News International, exacerbated the pressures for all main United Kingdom titles, and forced most companies to pare back on expenses.

The closure of Today was an admission that the title would never make any money, according to News International insiders. Having chalked up pounds 140m in losses, Mr Murdoch decided, finally, to walk away.

An offer this summer from Mohamed al-Fayed, owner of Harrods, to take Today off Mr Murdoch's hands was rejected in favour of closing the newspaper outright, in the hope that some of its 500,000 readers would move to other NI titles, such as the Times.

Insiders at NI said the closure would also allow additional copies of the Sun to be printed, and that the company was planning to concentrate on building up its other titles, including the Times, the Sunday Times and the News of the World.

At the same time, the price war was all but abandoned last night. Next Monday, the Times will be on sale for 30p, up 5p. Two months ago, the cover price was raised from 20p to 25p, allowing both the Telegraph and the Independent to follow suit, to 35p from 30p.

The Telegraph, which yesterday unveiled sharply lower profits for the year to date, said it was likely to raise its cover price as well, probably to 40p.

News International is also lowering the profit margin it provides to retailers, from 11.9 per cent to just 10 per cent. Taken together, the moves look aimed at improving the profitability of the Times.

"This means that even Murdoch isn't impervious to news-print increases," Daniel Coulson, chief executive of the Telegraph group, said. "And it means the price war didn't work."

The Times has seen its circulation nearly double to 680,000 from about 350,000 as a result of its aggressive pricing strategy. But following an initial slump, the Telegraph managed to keep its sales above the psychologically important 1 million mark.

Moreover, the rise in circulation hurt profits at News International at the very time that Mr Murdoch's cash needs elsewhere in the world, particularly in Asia, were growing. Profits from his master company were hurt by development costs at Star-TV, the Asian satellite broadcasting company.

The UK newspaper industry anticipates much more action in coming months. In particular, speculation over the future of the ailing Express titles intensified yesterday. Media analysts expect Lord Stevens, chairman of United News and Media, either to sell the newspapers or to invest fresh funds to improve their chances of competing against the rival Mail titles. The end of the price war will make it easier for him to find funds for the needed investment.

While shares of all the publicly quoted newspaper companies rose yesterday, analysts warned that the long-term problems remained.

"This is a declining industry," one media analyst said. "It will become increasingly hard to make any money out of [newspapers]."