As the pink 'un stays in the red, is Pearson's first lady for turning?

The group whose motto is 'live and learn' had a harsh lesson in economic reality last year. Tim Webb reports
Click to follow
The Independent Online

Dame Marjorie Scardino, the chief executive of Pearson, which reports its full-year results tomorrow, is glad it's now 2004. "The year 2003 wasn't hard to say goodbye to," she told employees in a memo last month typical of her informal management style. She had good reason. The year, she said, had been marked by war, economic malaise and a lack of investment in business and education, Pearson's core areas. The group's motto is "live and learn", so what does Dame Marjorie do next?

Meanwhile, over at 1 Southwark Bridge, home of Pearson's Financial Times, the editor of the loss-making newspaper, Andrew Gowers, is overseeing its latest gambit: global domination. With editions in the US, continental Europe, and now Asia, the FT is spreading its salmon pink tentacles all over the world. Mr Gowers, who took over at the start of 2002, must hope it will be less expensive than FT.com, which gobbled up most of the profits the newspaper made during the stock-market boom. The stakes are high. The paper lost £23m in 2002, and analysts expect it to lose another £35m for 2003, against forecast pre-tax profits of £485m for Pearson as a whole. Next year, it will lose £13m, they reckon, and not until the 2005 results do they predict a move into the black, and then only to the tune of £2m. Once the jewel in Pearson's crown, the pink 'un has an uncertain future. While it loses money, rumours persist that Pearson might sell it.

Mr Gowers seems unperturbed by the task ahead. He sent staff an upbeat memo earlier this month praising them for the week's news stories. It provides an insight into the quiet revolution taking place. He exhorts staff to take even more care to meet deadlines for the Asian editions, which were launched in September. The Indian papers, for instance, are being moved to an earlier printing slot in Dubai - one of 22 print sites around the world. This allows them to carry the same day's European news for the first time, even though the subcontinent is five and a half hours ahead of London.

The FT is no longer just a newspaper of record. Mr Gowers boasts that FT.com broke the story of Comcast's bid for the Disney empire 11 minutes before its arch rival, The Wall Street Journal, in much the same way that broadcaster Sky is obsessed about breaking news before the BBC and ITV. The days when the FT wrote solely about the previous day's news in the City are long gone.

Whether this global approach will pay off is another matter. Average daily sales of the newspaper in the UK and Ireland in the second week of this month, at just under 138,000, are 10.5 per cent down compared to the same week last year. But according to figures from Audit Bureau of Circulation, full price sales (which strip out bulk sales to airlines, hotels, etc) were just 103,237 in January. While in December - normally a quieter month for the FT because of the holiday season - they came in at under 95,000. Sales in continental Europe (the FT has a joint venture in Germany to print FT Deutschland) were down by 11 per cent to 135,000. The paper fared better in the US, where sales of 139,000 were 8 per cent ahead of last year. In Asia, sales are just under 30,000, but Pearson has not released a target break-even figure for the new edition. Overall, the FT sells 422,543 copies globally, the lowest figure recorded since the US edition was launched in 1999. This is despite the £10m spent last year launching the Asian edition and revamping the British newspaper.

Advertising revenue has slumped while costs have increased. Pearson warned in December's trading update that advertising at the FT would be 15 per cent lower in 2003 than the previous year. Analyst Graham Lovelace from Lovelacemedia explains why the FT was worse hit than the rest of the media by the advertising downturn. "When the stock market bubble burst, and following 11 September, big display adverts notifying shareholders of flotations and acquisitions dried up - and with them much of the FT's revenues. Even though the economy is now picking up, advertisers are hugely price aware, and have found alternative ways of getting their messages across, using direct marketing more."

Meg Geldens of stockbroker Investec says that even with the economy picking up she does not see a recovery just around the corner. "We don't expect Financial Times newspaper revenues to return to 2000 peak levels any time soon, but I certainly expect they will start to pick up during 2004." She regards some analysts' forecasts of a £25m loss for the newspaper as optimistic. "If they report a £25m loss on Monday, I'll clap my hands."

It will be hard to tell how well the FT's website, FT.com, performed last year, because its operations were folded into the main group for the first time. By the end of 2002, the website had broken even on an operating level (which did not include the start-up costs, estimated at £150m). The lavish spending at the peak of the dot-com bubble in 2000 was epitomised when Pearson took out an advertisement during the Oscar awards ceremony, hoping the website would help the FT break into the US market. The site now has 70,000 subscribers, paying between £75 and £200 a year, which is no mean feat. But the strategy has been confused. Pearson originally planned to pay for the site entirely through advertising; it introduced a mixed free access/subscription service when it realised this was not feasible. Despite this, FT.com is now an established brand, and a valuable asset.

Like most newspapers, the FT has been cutting costs, £100m since 2000. There is always scope for more cuts, but Mr Lovelace suggests it would be disadvantaged for the FT because, unlike most of its competitors, it is not part of a wider newspaper group that can share content and distribution. "The FT remains a tremendous brand, and asset," he says. "But it's a question of whether it can achieve economies of scale: a large newspaper group, like Dow Jones [owner of The Wall Street Journal], might be better placed to make savings in production and editorial, while the FT is more vulnerable, as there are few savings it can make within the Pearson group."

Other parts of Pearson are performing better. Penguin, for example, is one of the most profitable consumer book publishers in the world. However, profits at the group's biggest division, Pearson Education, are expected to be down by around 4 per cent. Pearson Education provides textbooks and runs examination programmes for schools and universities, mostly in the US, and has fallen victim to state budget cuts. But still, it is the FT that finds itself bottom of the class, the laggard holding back Pearson. "The future of Pearson clearly lies in its education business," Mr Lovelace explains. "Pearson's publishing arm is no longer what people are so interested in, and there are few synergies between the two businesses."

So could Pearson jettison the FT? The question has been asked before. There is always interest. In December, Douglas McCorkindale, the chief executive of the US based newspaper group Gannett, singled out the FT as an attractive acquisition target. Dame Marjorie has gone on record saying she would sell the newspaper "over my dead body". But her resolve could be weakening.

Comments