Fleet Street: Rewriting the story

Henry Mance

UK newspaper groups are re-evaluating what they produce and how to promote content

Rebekah Brooks looked to have completed a staggering comeback. The former tabloid editor had not only been acquitted of all criminal charges of phone-hacking and payments to public officials, she had also managed to resume her career in September where she left off: as chief executive of Rupert Murdoch’s UK newspaper operations.

There was one hitch, the newspaper business itself had changed in the four years Ms Brooks had been away . Even for an industry that has become accustomed to financial beatings, 2015 was brutal. Print advertising in the UK fell by ￡112m, according to estimates from Enders Analysis, equivalent to half Fleet Street’s aggregate profits, or the combined wage bills of the Times, Sunday Times and the Daily Telegraph.

Even Sky, the satellite broadcaster in which Mr Murdoch’s 21st Century Fox is the biggest shareholder, has moved millions of pounds of advertising spend from print to websites like Facebook. “This is a seismic shift away from print media,” says Douglas McCabe, an analyst at Enders.

Spending on national newspaper advertising has fallen by one-third since 2010 to ￡880m. Online prospects have also darkened. Adblockers, smartphones and new social media platforms are tearing holes in digital strategies.

During her first stint running the Sun and the Times, Ms Brooks set out a plan to make journalism “an economically exciting proposition”. Readers of both papers would pay for online access. It was “a defining moment”, she said in 2010, adding: “This is just the start.”

While she was away, however, that plan largely failed. The Sun invested in Premier League football rights, but converted few of its print readers into online subscribers.

So one of Ms Brooks’ first decisions on returning was to dismantle the Sun’s paywall. Instead, she would take aim at MailOnline, whose mix of celebrities, gossip and sensationalism has made it the world’s most popular English-language paper site. But the prospect of a Sun-MailOnline war has been dimmed by the fickle economics of online news.

For decades, newspaper executives have pointed to a “digital tipping point”, when revenues from online would offset lost print sales. Now some in the industry are questioning whether there will ever be a profitable future.

At least two titles — the Guardian and the Independent — remain lossmaking. Profits at the market leaders — the Daily Telegraph, the Sun and Daily Mail — have fallen 40 per cent in the past decade. Newspapers are also facing competition from digital players, such as BuzzFeed and Quartz.

“The industry needs to make a clear admission that the historic model for producing newspapers is bust,” says David Montgomery, former editor of the now defunct tabloid News of the World and until last year chief executive of regional publisher Local World. “Many in the industry are in denial.”

Disappointed pioneers

Britain’s newspaper industry is arguably the most exciting and competitive in the world. Its titles sell nearly 7m print copies a day, compared with 13m 10 years ago, operate two of the world’s most popular newspaper websites and often lead the way in investigations. In 2013 the Guardian published leaks by the whistleblower Edward Snowden; a year later the Sunday Times revealed corruption at Fifa, which contributed to the ousting of its president Sepp Blatter.

Financial worries are hardly new. Phone-hacking, the illegal accessing of voicemails by the News of the World and Sunday Mirror, was in part triggered by the need for big stories to drive sales.

What is new is the disappointing results of once-vaunted online experiments. MailOnline, with 14m browsers a day, last year missed its revenue target for the first time, and is still recording undisclosed losses. In January the Guardian, a digital pioneer, announced an annual loss of about ￡50m and said it would cut costs by 20 per cent over three years. In a fresh sign of the strain, parent group News Corp has promised to squeeze overheads at the Sun and the Times, while the Daily Telegraph has told staff to expect an “extensive strategic review”.

In some countries, publishers have changed course to claw back the revenue lost to online. In 2003, 93 per cent of UK property advertising went to newspapers; a decade later the proportion had halved. European newspaper groups, principally Germany’s Axel Springer and Norway’sSchibsted, responded by acquiring classified property websites.

UK groups failed to follow suit. The Guardian turned Auto Trader, a car magazine, into a successful online portal but then sold it to boost its cash reserves. Only the Daily Mail has diversified, using cash flows from its newspapers to build up a business information and events business. Today Trinity Mirror, the UK’s largest newspaper publisher, has a market capitalisation of ￡430m. Rightmove, the country’s biggest property site, is eight times bigger.

Instead of diversifying, the industry became locked in a debate over whether to introduce paywalls — the approach taken by the Financial Times, the Sun and the Times — or to seek huge global audiences for advertising, like the Daily Mail and the Guardian.

“People were still thinking in terms of single solutions, they were thinking ahead from the past,” says George Brock, a professor of journalism at London’s City University.

The Sun found that charging for content robbed it of readers and influence . It still sells 1.8m copies a day, but only 225,000 people signed up for digital subscriptions in a market where only 6 per cent of Britons say they are willing to pay for news online, according to Reuters Institute. The Times and Sunday Times still operate strict paywalls, and although their published accounts suggest they are breaking even, this rests on whether certain costs, including rent and printing, are absorbed by their lossmaking parent company.

Relying on online advertising, worth a total ￡3bn in the UK last year according to Enders, has also proved problematic. Traffic is expensive — MailOnline employs 800 staff — and returns can be limited. Readers are increasingly using mobile phones, where ads are small and often unseen.

Almost one in five users have installed adblocking software. Despite growth in the US, MailOnline remains lossmaking, and its rival Trinity Mirror, publisher of the Daily Mirror, is adding just 13p of digital advertising for every ￡1 of print revenue it loses.

“Advertising is not going to save you,” says one executive at a publisher which operates a free-to-access website.

Others are trying out sponsored content — bespoke articles and videos created for brands, as pioneered by BuzzFeed. But even that has proved disappointing for Fleet Street. Two industry executives say that such native advertising is expensive to produce, and often fails to generate the size of audience that many brands demand.

“Publishers are wrestling with the idea of being an [advertising] agency,” says Mr McCabe. “You can’t make it work unless you turn it into an almost industrial operation.”

Time to experiment

With no single answer, a conservative industry is starting to consolidate and experiment. Trinity Mirror has bought control of regional newspaper group Local World for ￡187m in an attempt to reduce costs and offer advertisers nationwide coverage. The Sun is launching an online betting site. The Guardian is expanding a membership scheme under which readers can pay between ￡5 and ￡60 a month to support the paper and attend events.

For the Sun and the Guardian, the strategy is clear: traffic alone may not generate revenues, but it may provide a captive audience for ecommerce and even micropayments, where readers pay for access to individual articles.

“The print business model hasn’t fundamentally changed: it is cover price plus advertising,” says Paul Zwillenberg, head of Boston Consulting Group’s media practice. “Digital is constantly evolving.”

Newspapers are also losing their direct digital route to their readers. “Five years ago news groups were trying to ignore Facebook and Google. Now they are facing the inevitable,” says Will Perrin, director of internet consultancy Talk About Local. “In the next five years it will be all about distribution — what is your relationship like with Facebook and Google?”

Apple and Facebook have launched news portals, while Google is developing pages to make news sites more readable on mobile devices. (The FT is participating in Apple News, Facebook Instant Articles and also supports the Google initiative.) In the short term, those platforms are promising publishers the opportunity to reach more readers and sell more advertising. There is even a possibility that Facebook, Apple and others could pay news publishers to carry their content, just as cable providers pay to carry particular channels.

“In time you will see quality content that drives engagement able to command the internet equivalent of pence per [TV] subs,” says Mr Zwillenberg.

It would make newspapers reliant on a third party platform to decide whether to display their content, and share revenue with them. For Fleet Street, which five years ago was investing in paywalls, homepages and apps, this was not part of the plan.

While identifying new revenue streams is crucial, some argue newspapers need to change fundamentally the content that they produce.

Newspapers deliver bundles of articles, with all major topics included. Their websites attempt to perform a similar service. But online readers behave differently, accessing articles through social media sites and flitting between different sources. The rewards go to those who have the best content or who distribute it most effectively, not those who produce a bit of everything.

“The cost of being second or third [best in a particular area] is now much higher,” says Mr Brock of City University. “The Guardian is competing in areas where it is not the leader?.?.?.? The brutal question is, does that really pay?”

A similar question applies to tabloids. Whereas once the Sun and the Mirror gripped the best puns and photo mock-ups, such content is now readily available on social media.

“The internet is very tabloid-y,” says one Fleet Street executive. “Facebook is effectively a tabloid — short, attention-grabbing pieces of information.” While the Sun spent tens of millions on football rights, digital publishers like The Sport Bible repurposed clips online without a licence — and gained millions of Facebook and Instagram followers.

The implication is that Fleet Street’s large newsroom may be unsustainable. The Times had 454 editorial staff at last count, The Sun 525, the Daily Telegraph 662 and The Guardian, following expansion overseas, 925. “There won’t be anywhere like as many 500-person newsrooms in five years’ time, let alone 10 years’ time,” says Mr McCabe.

Despite two decades of upheaval, Fleet Street has remained intact. No large newspaper has closed for financial reasons; several have benefited from their owners’ largesse. But there are signs of change.

When appointing Ms Brooks, Mr Murdoch made clear that performance at the Sun must improve. Alexander and Evgeny Lebedev, the Russian businessmen who bought the Independent in 2010, have tried to sell the title after amassing more than ￡50m in losses. The Guardian is spending even more than its ￡750m investment fund can bear. The Telegraph remains lucrative, but can no longer produce the ￡60m in annual operating profit sought by its owners, the Barclay brothers.

As a result newspapers may finally have to re-evaluate what they produce.

“The effort that has gone into [online] has always had one eye on the past,” says Mr Montgomery. “I think we’re getting to the end of that road now.”