Two years on and still no London freesheet winner

The capital's streets have witnessed a war of attrition between two of the UK's biggest press groups. Joy Lo Dico reports on a fight to the death

In June the Fleet Street rumour mill began to hum – thelondonpaper was facing the axe. All the evidence was there.

First came the accounts lodged at Companies House in April showing that the free paper had made losses of £17m in its first 10 months of operations, enough to make even the deep-pocketed Rupert Murdoch wince.

Next came James Murdoch, recently promoted to executive chairman of News International, who began reorganising the UK division of his father's empire, and stripping down the unprofitable elements. Surely thelondonpaper was on the list? Finally there was the advertising slump, which would be most painful for the freesheets.

Could things really be that bleak for a free paper which launched just under two years ago? Had the rival London Lite, owned by Associated Newspapers, publisher of the Evening Standard, triumphed in the capital's freesheet wars? As the rumour gained stickiness, News International had to put out an immediate rebuttal, saying it had every intention of building on the "success" of its freesheet.

There is some truth to this. Thelondonpaper, by common metrics, has stolen a lead. Its vendors, clad in purple anoraks, hand out more than 500,000 copies each day to passing commuters. London Lite is trailing behind on 400,000. The demographics also fall in thelondonpaper's favour. While London Lite is deliberately downmarket, thelondonpaper, with its emphasis on hard news and the capital's cultural life, picks up a better class of reader, and so commands a significantly higher price from advertisers.

There was little expectation that it would turn a profit before the first five years. London Lite was also still in the red, and it took the London morning freesheet Metro four years to reach profitability. Given those statistics, why was no one asking when London Lite would fold?

Ian Clark, managing editor of thelondonpaper, answers the question: "It will be the day after the Evening Standard closes," he said confidently.

The trouble with this battle is that thelondonpaper and London Lite may be competing in circulation, advertising revenue and financing, but there is another playing field. London Lite launched in August 2006, just days before its rival. Both had been looking to make a bid for the new Tube distribution contract on offer but decided to hit the streets overground instead. While thelondonpaper was Rupert Murdoch's venture into free newspapers in the UK, London Lite was a more subtle proposition. It was widely perceived as a spoiler against anyone who tried to impinge on the Standard's dominance in the London market.

Clark has good reason to suspect that the Evening Standard might be the first to go from London's evening market. When the freesheets launched, the Standard was selling 289,254 copies. In the last ABCs for July, it sold 292,455. An amazing success, it claimed. It was left to thelondonpaper to point out that the Evening Standard had not so much risen above the bitter freesheet wars as joined in. Of the Standard's sales, 43 per cent were bulks – giveaways or reduced-price copies available at gyms and airports.

"With the sales at a historic low and bulks increasing at a staggering rate, the Standard bulks look set to overtake paid-for sales by the end of the summer," said Clark, after the June ABCs. "We welcome them to the land of the free."

It might explain why London Lite surprisingly makes a virtue of its smaller circulation. While thelondonpaper is sweeping up early-afternoon strollers and hanging around later at suburban stations, Associated's title claims to distribute in a strict time frame to pick up a more specific reader.

"You get a sweet spot, a pure audience," says Steve Auckland, managing director of London Lite. Although he is also pleased to have triumphed in this week's National Readership Survey figures which put London Lite on over a million readers compared to thelondonpaper's 963,000.

Keeping circulation focused on the "pure audience" of 400,000, and its readership downmarket, means London Lite does not head too deeply into Evening Standard territory. There has always been friction between the two products. London Lite's launch editor Martin Clarke was said to have had rows with the Evening Standard editor, Veronica Wadley, who had good reason to worry that the cannibalised version of her newspaper would steal readers.

London Lite, however, continues to be closely tied up with the Evening Standard, sharing news reporters. "We are reaping the benefits when utilising some of the stories from the Standard and subbing them down," says Auckland. "We have always been in the same newsroom and will always be looking for synergies between the two products."

It makes for a similar but very distinct product, but the costs are significantly reduced, compared to thelondonpaper's stand-alone operation.

It also means that they can charge less for advertising, a particular advantage in tough economic circumstances. Both freesheets have been helped immeasurably by the launch of Metro in 1999, which persuaded major media buyers into taking the frees seriously. Metro, which is distributed free on the Tube, still commands the highest price, by virtue of getting the first glances of the elusive market of working Londoners who don't part with cash for a newspaper.

The evening papers get the second slice. "The crossover between Metro, London Lite and thelondonpaper means you are building in frequency, as opposed to a wider audience," says Mark Gallagher, executive director of Manning Gottlieb OMD, a major media-buying agency which looks after Virgin, Apple and Sony. "There's a fundamental issue in what we are prepared to pay for it."

London Lite can steal a march helped by crossover deals with the Evening Standard. It's this financial synergy that also means London Lite can have a dig at thelondonpaper's early losses. Auckland admits that his paper is still losing a "sizeable chunk" of money, but "substantially less" than thelondonpaper. After two years, neither newspaper looks ready to cede any territory.

"I think thelondonpaper will stick with it, but I don't see why," says Auckland. "We are still on track to be profitable in five years. Their profits are a long way off and their tactics are not going their way."

But really, if, hypothetically, thelondonpaper threw in the towel, would London Lite continue to exist? "Yes, absolutely," says Auckland.