In September of this year media giant Trinity Mirror announced it was in talks to buy the publishing assets of Northern and Shell which owns the Daily Express and Daily Star as well as magazines including OK! and New! Trinity Mirror publishes the Mirror newspaper and owns over 260 titles including a large number of regional publications. Richard Desmond, owner of Northern and Shell, paid £125m for the Express titles in 2000. Whilst mergers and acquisitions are part and parcel of a fast paced and evolving industry, speculators are bracing themselves for major consolidation as external pressures continue to grow.
For hundreds of years daily newspapers were the chief means of disseminating information to the masses, and have proved largely resilient to economic and technol
ogical changes. However over the last twenty years the introduction of online news platforms, on-demand television and the exponential growth in social media has forced unprecedented change and consolidation in the industry. Will we still see daily newspapers 20 years from now? Will they, like the unexpected
resurgence of vinyl records, collapse in popularity only to be reborn at some point in the future?
A Brief History of British Newspapers
For centuries newspapers have been the main means of distributing locally, nationally and internationally important news. Papers can be traced back to the early 16th century but a largely illiterate population at the time still relied on town criers and storytellers for news. The Worcester Journal started as the Worcester Postman in 1690 and continues today. In 1791 The Observer was launched followed in 1855 by the Daily Telegraph as local newspapers started to give way to national publications. Through various structural changes and increasing regulation (including the introduction of the Official Secrets Act in 1889) the market has matured and evolved. Even the Sun, Britain’s best selling daily paper, was only introduced in 1964 and its influence on society is immeasurable. Certainly they featured heavily in two general elections, one when they asked people to vote for the Labour Government under Tony Blair, and one asking people to put their faith in David Cameron as Conservative Prime Minister.
The New Day – Bad Luck, Bad Timing or Bad Management?
In 2016 Trinity Mirror announced the closure of its ‘The New Day’ after just two months. Initial expectations of daily sales of 200,000 copies proved to be vastly over-optimistic and when sales fell to around 30,000 copies, the losses became too much for the company to sustain. At the time, Trinity Mirror aimed to revitalise the industry by aiming at those who had ‘fallen out of love with newspapers’, aiming at a middle-aged, politically neutral female audience who could spare no more than 30 minutes to read a paper. Analysts blamed a lack of coherent strategy. Among other things, their pricing strategy consisted of free copies on day one and 25p a day for two weeks before rising to 50p. It was then announced that the price would stay at 25p because of low sales, immediately followed by a contradiction which again saw the price rise to 50p. Some placed the blame at factors ranging from inexperience to lack of risk-awareness from the leadership team. Roy Greenslade, a journalist at The Guardian suggested a fundamental error was marketing a newspaper at an audience who did not like newspapers, coupled with an ineffective marketing strategy and an inability to print the very latest news.
Essentially as markets mature and companies face the pressures of ageing products and inflexible structures, a process of consolidation tends to occur, where merger and takeover activity increases. Consolidation tends to take place when three conditions are met (1) over-supply in a market (2) traditional business models are unsustainable and (3) where the cost savings and associated synergies are difficult to ignore. All three conditions are present in the newspaper industry. For example next time you are in a newsagent or bookshop look at the number of national newspapers compared to America, which has three for a much larger population; The Wall Street Journal, Washington Post and New York Times. Add to this the ever-growing pressure of digital news and you start to wonder just how long the industry can last. At the same time the industry has not sat back and watched it happen. The Telegraph was the first national newspaper to launch a website and the Daily Mail has one of the worlds most popular sites while in 2016 the Independent was one of the first to convert to online only.
Market Structure and Segmentation
As you can see in the table, the market is dominated by large groups owning several newspaper titles. Circulation between 2005 and 2017 fell on average 4% per year, from daily sales of nearly 12 million in 2005 to 5.5 million in 2017. In any industry a fall of over 50% in market size in 12 years is enough to trigger market transformation.
The actual format and layout of the newspaper is also important, with a decline in the large broadsheet papers and increase in tabloid-sized editions.
Price Elasticity and Competitiveness
Brand loyalty in the newspaper industry remains strong despite fierce competition. As some national papers have clear political allegiances they must balance this against the need to generate advertising revenue and maximise sales. Price competition does not necessarily have the same effect as in other industries. For example, Richard Desmond (owner of Express Newspapers and founder of Northern and Shell) slashed the price of the Daily Star, Saturday Star and Daily Start Sunday by 50% in 2016 saying the move was ‘designed to inject some overdue sales and excitement into the category’. The promotion clearly boosted sales. The Daily Star circulation increased by 22% and the Daily Star Sunday increased by 26%. At the same time however, sales of the two main rivals (The Sun and The Mirror) were unaffected and neither responded with price cuts of their own so the strategy was discontinued.
Even when the Guardian increased it’s cover price by 20p in September 2011 volume only dropped by 4.4% but saw an increase in circulation revenue. Can we therefore conclude that customers are not as sensitive to price changes than the media initially assumed? Here are some more examples of price changes and effects between 2007 and 2010:-
- The Times – price increase from £0.65 to £1.00 = increase in circulation revenue of 16.7%
- The Independent – price increase from £0.70 to £1.00 = increase in circulation revenue of 13%
- The Daily Telegraph – price increase from £0.70 to £1.00 = increase in circulation revenue of 7%
As the market continues to consolidate, retrench and adapt to the increased challenges of 24/7 global news and technological innovation, the National Readership Survey revealed the main influences on change within the industry, breaking these down into those which influenced sudden change and those which were more gradual (see Table 4 below).
Based on this, are we seeing the long, drawn out death of the newspaper? The Reuters Institute’s 2016 Digital News Report said the market was declining rapidly saying ‘Over the last year the newspaper sector has been hit hard by a sharp fall in print advertising, by the growth of ad-blocking and problems of monetising content on mobile devices’. With so much revenue coming from selling advertising space (e.g. over 50% of Guardian Media Group revenue) the industry has, and will continue to, cut costs. The difficulty for traditional publications is that advertisers have a huge range of different channels to use to get their message across, and newspaper space is relatively expensive so they are looking elsewhere. As Lord Leverhulme said, “I know 50% of my advertising does not work. I just don’t know which 50%.” Daily Mail and General Trust laid out cost cutting plans of £50m with 400 job losses in September 2016. At the same time Guardian Media Group in July 2017 reported a rise in revenue of 2.4% and a reduction in losses by streamlining operations and reducing the workforce by over 1,500 employees. At the current rate of change Guardian Media Group aim to break even by April 2019. By changing their customer base to include monthly membership, daily purchase and digital subscription, the group have gone some way to adapting to the changing market. Professor Roy Greenslade of City University said “It’s time to recognise the whole UK newspaper industry is heading for a cliff fall, that tipping point when there is no hope of a reversal of fortune.” Against this is the glimmer of hope that nearly 7 million people a day still buy and read newspapers, many of whom are in the 18-24 age bracket suggesting printed news is not quite dead yet. The opportunities are there along with the challenges. Whether it can adapt to a market where multiple channels to the customer exist remains to be seen.
Questions / Areas for Discussion
- How might the idea of segmenting the market help the major newspaper publishers?
- Create a market map of daily newspapers.
- To what extent is newspaper readership limited by demographic or geographical constraints?
- Using this article and any other sources you can find, investigate the extent of price sensitivity in the market. Would you descript demand as price elastic or inelastic?
- How does the Product Life Cycle model apply to the newspaper industry? Is it a valid way of examining product success?
Paul Rapley is an Assistant Headteacher at Taverham High School, Norwich