Breaking news? Kent saves local press

The OFT is tipped to approve a merger deal that could show the way forward for regional newspapers. Laura Chesters reports

When a security guard was attacked by a baseball bat and samurai sword-wielding gang, when a model railway that took 30 years to build was saved from destruction, and when the Sittingbourne vs Maidstone United grudge match was called off because of floodlight failure, the Kent Messenger made sure its 112,000 loyal readers were the first to know.

These are just a few of the recent hot stories in the country's biggest-selling, weekday, weekly regional newspaper, with readers across Maidstone, Medway, Malling, Sittingbourne and Weald.

Once known as the Maidstone Telegraph, the paper is still owned by the same family that snapped up the title 31 years after its launch in 1859. Defying the downturn in local newspaper sales, Messenger-owner KM Group has even turned a profit for the first time since 2006.

Now this low-profile company, which owns a stable of weekly newspapers for different parts of Kent, awaits the outcome of an Office of Fair Trading (OFT) probe into its takeover of a group of Kent newspapers, which could have huge implications for the future of local papers.

KM Group has made a bid for seven titles owned by Northcliffe Media: Dover Express, East Kent Gazette, Folkestone Herald, Isle of Thanet Gazette, Medway News, the Thanet Times and the Herne Bay and Whitstable Times.

On 4 October, the OFT will conclude a 40-day investigation into the competition issues surrounding the acquisition. Most experts expect the deal to be approved, giving KM a monopoly of the Kent newspaper market. It already has a range of media interests in the county that include the Faversham News and the Sheerness Times Guardian, as well as seven local radio stations. Its titles reach 41 per cent of Kent's adults.

If the deal goes ahead, Northcliffe will be left with just the Kent & Sussex Courier. Archant is the only other significant newspaper group in the area.

Douglas McCabe, a media expert at Enders Analysis, says that approval would create a precedent to allow a restructuring of the entire local newspaper sector. "The inquiry could well find that it is actually better for one large company to own a group of papers in an area rather than two smaller ones whose futures could be at risk," he says. "If they get the go-ahead, this could be the starting gun for much bigger mergers."

Regional newspaper and commercial radio executives have been calling for the Government to relax ownership rules for years. There have long been rumours of mergers within the UK's regional newspaper groups as they try to find cost savings made necessary by falling circulations as the public's reading habits change – particularly as a result of free news on the internet – and advertising revenue slumps. The Daily Mail and General Trust, of which Northcliffe is a part, has certainly felt the sting. After a review of its operations, DMGT managing director Steve Auckland decided that it was time to sell the Kent titles even though Northcliffe bought them only four years ago.

However, there will still be problems, even in a sympathetic regulatory environment. A media investment banker says: "It is almost a sure bet that any sizeable merger within the regional newspaper sector would get the go-ahead [as against a few years ago]. But the problem is they are dying on their feet."

The Scotsman and Yorkshire Post-owner Johnston Press last month revealed a pre-tax profit plunge of close to 50 per cent and let go 180 staff. Advertising revenue fell by 10 per cent in the first half of the year and its net debt stood at £370m.

In the same month, Trinity Mirror's regional newspaper group announced that profit was down 36.3 per cent to £18.4m in the first half. It also axed 85 journalist jobs at the Scottish Daily Record and the Sunday Mail to cut costs.

The poor finances of a number of the sector's big players have led some experts to doubt whether consolidation is even possible. "There is not the capital out there for any deal to occur," says one corporate deal-maker. "The regulatory environment might be easier but the financial situation of this sector is incapable. Johnston Press, Newsquest and DMGT are likely to be sellers, but who would be the buyers?"

Top media investment banker Harry Hampson, of JP Morgan, counters: "Capital is not the only route for consolidation. We could see mergers and consolidation via share swaps. It doesn't just have to rely on fresh capital and new debt.

"Basically, without consolidation titles will close and the sector will die."

The growth of the KM Group may well be a sign of things to come. Regional newspapers might do best in the hands of companies that know their readers well – KM boss Geraldine Allinson is the great-granddaughter of Barham Pratt Boorman, who bought the Messenger in 1890 – rather than large corporates.

There are early signs that regional newspaper empires could flourish as readership numbers pick-up, online at least. Last week's figures from the Audit Bureau of Circulations found the number of daily visitors to regional news websites rose by more than 25 per cent in the first six months of 2011, while three of the biggest regional newspaper publishers reported online traffic growth of at least 30 per cent year on year for the same period.

The outgoing KM Group managing director, Graham Mead, told his readers last week: "Local newspapers are alive and well. Communities will always exist and they need news, information and places to share experiences."

Market dominance might have the negative connotations of inefficiencies and relaxed owners lacking the dynamism to create better products, but the OFT could conclude that it is the only way to save the industry.

Then, KM Group can hope that its local campaigns – which include getting the Medway area city status, preventing maternity services being moved away from Maidstone Hospital and fighting toll rises on the Dartford Crossing – will keep its readers coming back both to online and its newspapers for another 152 years.