Mathew Horsman on the media

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The economics of national newspaper publishing have been dismal for a considerable time - made worse, of course, by Rupert Murdoch's long running high-stakes cover price war. Costs have spiralled, too, notwithstanding serious efforts to improve margins by laying off staff (at Associated Newspapers, here at the Independent, the Observer, even at the Times). The real culprit, on the cost side, remains newsprint, which has risen by 50 per cent in a year, causing howls of pain up and down what we now only metaphorically call Fleet Street.

Newsprint represents from between 25 and 30 per cent of most publishers' costs. Volumes can be varied (smaller print runs, fewer pages) but only at the risk of having to turn away advertisers and shortchanging readers. At the same time, there is such intense competition among newspapers for the United Kingdom's gently declining total readership (down nearly 2 per cent over the past 10 years) that no publisher wants to cut back too much.

The overall performance of the industry has been terrible indeed, to judge by the sharp plunge in newspaper profits at News International, the Telegraph, and other major groups in the course of 1995, the year when the double whammy of high newsprint costs and low cover prices reached its zenith.

The current pressures are to a degree self-inflicted. In the past five years, the industry has added pages with something approaching abandon; indeed, pagination is now 50 per cent ahead of the levels of 1990. Supplements have blossomed like mushrooms, climbing by 85 per cent in volume terms since 1990. That was all right when newsprint prices were low. But the rapid rises since 1993 have pushed up costs hellishly.

Could all that be about to change? There is new optimism in the management offices at Blackfriars (the Express), Canary Wharf (home to the Mirror, the Indie, the Telegraph) and Kensington (the Mail). For the first time in three years, newsprint costs appear to have plateaued, and are now unlikely to increase further from their present - admittedly sky-high - levels. There is a ceasefire in the cover price war, as even Mr Murdoch has seen fit to push up the price of the cut-rate Times (tired, perhaps, of all that red ink?).

Advertising, which hasn't, in fact, been all that bad in the past three years, looks like improving sharply toward the middle of 1996, to judge by the estimates published by the Advertising Association. And this despite the prospect of only moderate growth in the economy and the generally sour mood among consumers.

Last year, advertisers spent a whopping pounds 1.4bn in national newspapers, broadsheet and tabloid, generating about 54 per cent of total newspaper revenues. Of this, display was by far the biggest category, accounting for 80 per cent of the total.

With the prospects of an election early in 1997, this year could see some pre-election priming of the pump, always a good thing for consumer spending. That should bring out the advertisers further. Look for growth in advertising revenues of about 5 or 6 per cent this year, compared to 3 per cent last year and a glittering 12.8 per cent a year earlier.

To recap, then: 1) newsprint prices have levelled off; 2) the price war has abated; 3) advertising is set to grow, if modestly. All good news, surely?

Not quite. There is still a desperate fight for readers in a market that remains over-served, despite the closure last year of Rupert Murdoch's bold and brassy mid-market tabloid, Today. Promotions - coupons, CDs, trips, cars - are still with us, and it all costs money. In the words of the Telegraph's managing director, Stephen Grabiner, the price war has been replaced by a promotions war.

Second, the recovery in the newspaper market promised for 1996 and 1997 isn't of real long-term help to an industry that is in decline. Competition from radio, commercial television and cable and satellite is already having an effect. Stop for a moment and imagine what will happen once Channel 5 is launched next year, and cable and satellite penetration finally breaches the 10 million subscription level sometime around the turn of the century. Newspapers face continued and intense pressures.

For the far-sighted, a way forward might be found in the new forms of media; say online delivery or interactive services. Newspapers are mighty marketing machines, usually with strong readership identification. As the Telegraph and the Times have discovered, quite a few people like to log on to their computer screens to read selective bits of the newspaper. Within a few years, electronic publishers will be able to offer a far more extensive range of products, in effect allowing their readers to construct their own newspaper on line, leaving out the bits they don't want and getting more of what they do (maybe more arts, or double the business news).

Newspapers are good at gathering information and packaging it. This is precisely what the brave new world of interactive media will thrive on.

More prosaically, newspaper publishers might seek alliances with other media companies (which they will be permitted to do under the new Broadcasting Bill). While the immediate advantages of combining national newspapers and television (as MAI and United News & Media intend to do through their pounds 3bn merger) are difficult to see, there are doubtless some synergies to be explored down the road, in the form of shared news-gathering, perhaps, or through the development of multimedia (video and text) products.

Call me old fashioned, but I believe there will always be a market for the printed newspaper, the kind we can read on the train or while sitting at a cafe. The economics of the business is such, however, as to make it impossible for the newspaper of the future to be produced on current methods. There will be fewer titles, and the successful ones will have to focus on core readership. They will no longer attempt to cover the waterfront, dispatching legions of journalists to gather the news. They will know their readers and they will cater to them.