80% of the national newspapers we read are controlled by 5 families, this is not a free press and it undermines our democracy. Our vote is worth little if a few people control the information we read.
We now have a unique opportunity to reduce this concentration of media power by using crowd funding to acquire The Times and The Sunday Times from News Corp. We argue the newspapers are an attractive investment despite being slightly loss making. We outline how they can be turned around to make a profit and how this is aided by a crowd bid. We target raising £100m, £120 per reader, to fund the acquisition of the newspapers for up to £50m, with the remainder to make investments to take the newspapers to profitability.
“It always seems impossible until it’s done” Nelson Mandela Back the bid at www.letsownthenews.org
3-5
How would this work?
3 What is crowd funding? 3 Can crowdfunding raise enough? 4 How would the companies be run afterwards? 4 How would you sell or buy shares afterwards? 5 Why would News Corp sell? 5 Why The Times and The Sunday Times?
6 7-9 10-11 12-22
Why is this needed? Why is this an attractive investment? How much do we need to raise? Appendix
12 Newspaper circulation and readership 14 Early signs of digital success 16 A partial paywall strategy
17. Opportunity to differentiate further 18 Influence of the press barons 22 Useful information
Backed by The Young Foundation
How would this work?
3
What is crowd funding? Crowdfunding is way of funding companies, causes and projects by lots of individuals making small investments through the internet. For companies it is very similar to a company flotation, other than money is raised directly from individuals through an internet platform, rather than from investment funds via banks. You all invest an amount of money and gain ownership in proportion to your investment.
2-stage crowd bid 1) Non-binding pledges to invest In the first phase we ask for non-binding pledges to invest. This is just like signing a petition other than you state an amount you would be willing to invest. This is not legally binding, it just provides an indication of support.
2) Binding pledges to invest Then if we received sufficient support and News Corp agree to negotiate a sale, we would publish a detailed investment prospectus and launch a formal crowd funding process. We would ask for binding commitments to invest either by entering card details, or transferring money into an escrow account. We would then negotiate the acquisition of The Times and The Sunday Times. If successful we would take your money and complete the acquisition. If unsuccessful you would receive 100% of your money back.
If unsuccessful your money is not taken Can crowd funding raise enough? Crowd funding has grown rapidly over the last few years, raising larger and larger amounts. NESTA estimates it raised £200m in the UK in 2012, and has been growing rapidly since. Around 80k individuals in the UK have invested in crowd funded companies. We target raising £100m, to use up to £50m to acquire the newspapers and the remainder as a buffer to make investments to take the newspapers to profitability. The Sunday Times has a circulation of around 850k, therefore this is only £120 a reader. In comparison a digital subscription to The Times is £310 a year, therefore for 1/3rd of the price of an annual digital subscription the readers can acquire the newspapers.
Example fundraising mix # People 10 100 35,000 50,000 300,000 385,110
Per person, £ 500,000 50,000 1,000 500 100
£m 5 5 35 25 30 100
Ownership 5% 5% 35% 25% 30%
£100m target Only £120 a reader Only 1/3rd of an annual digital subscription
4
How would the companies be run afterwards? The aim would be to change very little in how the companies are run, other than instead of the editors being answerable to Rupert Murdoch and a News Corp executive, they would be answerable to a board of directors elected by the shareholders. We propose a normal company structure with a few alterations.
• 1% ownership cap – There would be a 1% cap on ownership for any individual or entity to ensure no one gains control. • Contested board of director elections – There would be an open process to nominate members to the board of directors and the Chairman would be required to ensure that elections were contested. This would ensure that shareholders feel engaged with the management of the newspapers. • Direct engagement – In addition to voting on the board we also propose a number of ways for direct engagement such as shareholders voting on issues to be investigated and voting on a charter of principles to guide the management of the newspaper.
How would you sell of buy shares afterwards? There are a number of options for creating a secondary market after the acquisition to allow people to buy and sell shares. An existing platform for trading shares in private companies could be used, or a bespoke platform could be built. Example bespoke platform - One option for a bespoke platform would be a set window of annual trading. After the annual financial statements are published a number of third parties would publish reports estimating the valuation. There would then be 7 successive rounds where individuals can tender to buy or sell shares at a certain valuation. After each round you are told the clearing price of the round and whether your order was matched. Tenders are binding and can only be improved in subsequent rounds to avoid individuals gaming the process. This allows people to sell their shares without the short term pressures and costs created with daily trading on the stock market. And it concentrates liquidity into a set period to allow people to trade in what will be a small company versus most listed companies.
5
Why would News Corp sell? • News Corp considered selling the UK newspapers before and may do so again. • A crowd bid allows the Murdochs to be part of a step forward for our democracy, for the first time allowing a major newspaper to be owned by its readers. This is a chance for the Murdochs to rejuvenate their public image after the phone hacking scandal. • The Times and The Sunday Times are loss making and therefore financial markets attribute them a zero to negative value. Therefore selling them should lead to an increase in the News Corp share price. This is especially relevant if they want to do deals such as the bid from 21st Century Fox for Time Warner, which are helped by a higher share price. • Even looking at News Corp’s UK newspapers in total (ie including The Sun) they are only 5% of News Corps total value, therefore relatively unimportant. • The Murdochs don’t have complete control of News Corp, they only own 14% of the equity value of News Corp and 39% of the voting rights. Therefore they need to consider the interests of other shareholders and these other shareholders may exert pressure for News Corp to sell what are relatively unimportant assets. • For the Murdochs, BskyB is a significantly more valuable asset in the UK. If £100m is raised then the public and political pressure will be considerable. The Murdochs may consider selling to ensure goodwill in respect of BskyB.
Why The Times and The Sunday Times? • They are the newspapers that are most likely to be sold that are large enough to have the scale to be profitable and make a difference to media concentration. • The combination of a large and richer than average readership base, combined with a low valuation makes raising the required funds possible.
Why is this needed?
6
Why do we need to own the news? • We don’t have a free press - 80% of the national newspapers we read are controlled by 5 families, this is not a free press and it undermines our democracy. Our vote is worth little if a few people control the information we receive. • It is the next step for our democracy – Our democracy has been constantly evolving with more people gaining the right to vote, to increased diversity in the backgrounds of our politicians. And yet for a hundred years our press has been controlled by press barons. See the BBC4 documentary ‘The Prime Minister and the Press Barons’ for a history of the press barons influence. The next step in the evolution of our democracy is for the voters to control the source of information we rely on to inform our votes. • Crowd bid would be an important step - Buying The Times and The Sunday Times is an achievable step to reduce media concentration and show that readers can acquire and own a newspaper. It would show there is an alternative to newspapers being owned by wealthy individuals seeking political influence.
• Change needs to be external - The Leveson inquiry collected an abundance of evidence on how press barons have sought to influence politicians. And yet the proposed reforms will do little to reduce the influence of the press barons; our politicians remain in fear, change needs to come externally. A crowd bid reduces media concentration without any need for regulations or politicians.
Selected quotes from the Leveson inquiry see p.18-21 for more See p.18-21 for a selection of quotes from the Leveson inquiry showing the press barons influence. The focus naturally falls on Rupert Murdoch as he is the current most powerful press baron. However this is not about Rupert Murdoch, but instead about a unique opportunity to take an important step to reduce media concentration. The news we read should not be decided by a press baron, whoever they may be. “certain of the newspapers are used by their owners/editors as instruments of political power, in which the boundary between news and comment is deliberately blurred” Tony Blair (former Labour Prime Minister)
“So far as I recall, he made no mention of editorial independence but referred to all his papers as “we”. Both Mr Murdoch and I kept our word. I made no change in policy, and Mr Murdoch’s titles did indeed oppose the Conservative Party...” Sir John Major (former Conservative Prime Minister)
“it was just a better opportunity to try to get to know Rupert Murdoch better. Obviously I was trying to win over his newspapers and put across my opinions, so for me it was just an opportunity to try and build that relationship.” David Cameron (Conservative Prime Minister)
“In my opinion as a politician, I also believed that the Murdochs’ political influence exercised through their newspapers had become disproportionate” Vince Cable (Lib Dem MP)
“Concentration of newspaper ownership gave Murdoch a sense of invincibility. I believe that the wrongdoing in News International went unchecked because their size gave them too much power. News International owns too many newspapers.” Harriet Harman (Labour MP)
“the Murdoch stable was always perceived by its rivals to have a privileged position. “This was because of its spread and power as a publishing group, and Mr Murdoch’s readiness to use papers such as the Sun to intervene aggressively” Andrew Marr (Journalist)
Why is this an attractive investment?
7
Despite The Times and The Sunday Times being slightly loss making we argue it is an attractive investment. We argue it is already on track to reach profitability and a crowd bid could help this further. We argue that newspapers are going through a difficult transition to online from which they will emerge as strong businesses.
1. Already close to profitability The Times and The Sunday Times are already close to profitability with a £6m loss last year on £348m of revenue. The loss is down from £72m in 2009.
The Times and The Sunday Times revenue and clean operating profit, £m 450
393
402
393
360
350
348
250
Supporting the case that profitability can be 150 achieved, the new editor said “the era of being 50 subsidised is coming to an end”, this suggests that News Corp believes that profitability can be (50) achieved. Prior to this the subsidies from News (150) Corp provided little pressure to make a profit.
(42)
(72) 2009
2. Merge Sunday and daily editions
2010 Revenue
(10)
(6)
(14)
2011 2012 2013 Clean operating profit
When Rupert Murdoch acquired The Times and The Sunday Times in 1981 he signed an agreement that included a provision to not merge The Times and The Sunday Times, because of his already significant newspaper ownership. Both are still run as separate companies, however most other newspapers have merged the daily and Sunday editions, benefiting from the resulting cost savings. Though this would of course need to be done gradually as the cultures of the two newspapers is quite different.
3. The Telegraph is profitable with lower revenue A clear example that broadsheet newspapers can be profitable is shown by The Telegraph that achieves an 18% operating profit margin despite lower revenue than The Times and The Sunday Times. This is partly demographics, but also The Telegraph has merged its daily and Sunday operations. The Guardian and The Independent are loss making though they have significantly less scale than The Times or The Telegraph. The Times financials and broadsheet comparisons The Times Revenue, £m Gross profit, £m Operating profit, £m Profit margin
2010 393 97 (42.4) -11%
2011 402 125 (9.5) -2%
2012 360 115 (13.8) -4%
2013 348 102 (5.9) -2%
Editorial staff Staff cost, £m
608 (52.5)
542 (54.5)
513 (46.5)
473 (45.9)
2009 220 (32.5) -15%
2010 196 (36.9) -19%
2011 195 (48.2) -25%
2012 195 (38.1) -19%
(110.7)
901 (95.0)
968 (100.4)
915 (102.0)
The Guardian Revenue, £m Operating profit, £m Profit margin Editorial and prod. staff Staff cost, £m
The Independent Revenue, £m Operating profit, £m Profit margin
2011 57 (22.3) -39%
2012 58 (16.6) -28%
Staff Staff cost, £m
321 (20.2)
39 (19.6)
The Telegraph Revenue, £m Gross profit, £m Operating profit, £m Profit margin Editorial and prod. staff Staff cost, £m
2009 317 107 41.4 13%
2010 324 123 60.1 19%
2011 331 118 55.7 17%
2012 328 119 58.4 18%
615 (69.7)
619 (75.4)
627 (77.8)
630 (77.5)
Source: Companies House
8
4. Potential lower competition amongst broadsheet newspapers Competition may reduce in the broadsheet market improving the ability for The Times and The Sunday Times to make a profit. The Independent may shut down – There is a possibility The Independent will shut down or stop print distribution, given its falling sub-scale circulation and continued financial losses. The press have reported that the owner Alexander Lebedev has been seeking a buyer for the papers with little success.
The Guardian may scale back – The Guardian’s yearly loss is funded by the endowment at the Scott’s Trust. However this is not sustainable as the endowment is slowly being spent. The Guardian may choose to scale back operations such that the annual loss can be covered by the income from the endowment, for example reducing rural or daily distribution.
5. Newspaper content is still in demand (more detail p.12-15) While print circulation is falling, total readership including online is arguably going up, therefore newspaper content is still valuable. People prefer to read their news from a trusted source and one blogger is no replacement for a team of 400 journalists. Hence offline news providers dominate online news provision. The issue is that newspapers initial online strategy was to provide content online for free, but online advertising revenue is insufficient to make up for the loss of print revenue. Therefore in the last few years newspapers have started to charge for content online in a variety of ways. Despite the significant cultural shift this requires there are already encouraging signs, 22% of revenue for broadsheets is now digital. Tablet owners and younger people are more likely to pay for news online. At the end of 2013 The Times and The Sunday Times had more than 150k digital subscribers. See page 12-15 for more detail.
6. Some improvements to the current digital strategy (more detail p.16) The Times and The Sunday Times currently have a full paywall, which means that all content is restricted to those who pay for it, and as such content does not appear in search engines or on social media. However most newspapers that are successfully managing the transition to online have a partial paywall where some content is provided for free, for example you can view 3 articles a month for free before you need to pay a subscription. This brings a number of benefits. • With sufficient differentiation between the free and paywall content this strategy can allow a newspaper to monetise both the paying and non-paying customers. • It provides a base of non-paying customers to up-sell to the paid offer. • The use of free content that is shared on social media provides free advertising. This is also preferred by journalists as it increases the number of readers they have. We would partly open up the paywall at The Times and The Sunday Times to gain these benefits. This would also increase the job satisfaction for the journalists as it increases their audience. And it would also aid expanding globally.
9
7. Potential for further differentiation (more detail p.17) For newspapers to charge for content online they have to provide something different than what can be viewed for free. This requires a change in how newspapers charge customers, what sort of content they create, how they create it and in what format consumers read it. Newspapers need a shift in mind-set to view themselves partly as a tech company where how the content is delivered is just as important as the content itself. We see further upside for newspapers as the digital world allows newspapers to offer more differentiated content at a lower cost than via print. Some example areas, micropayments, video, targeted adverts and tailored front pages.
8. Potential lower cost digital model Digital distribution is significantly cheaper than print distribution, therefore revenue can fall and newspapers still increase profit with the digital transition. The cost of printing and distributing newspapers is roughly 40% of a newspaper’s costs and this excludes the margin that retailers make on selling newspapers. For example if a newspaper is sold for £1 in a shop, the retailer buys it for c.50p and it may cost the newspaper 20p to print it and transport it to the retailer. Therefore the digital price only needs to be roughly 30p to maintain the same profit as £1 at the newsstand. In addition money can be saved with higher newsstand prices to encourage people to migrate to a subscription. Currently newspapers are sold at the same price at all 55k distribution points across the UK. We argue that newsstand prices should be increased to encourage people to move across to a subscription where print and digital access are bundled together. Newspapers in other countries have a much higher proportion of circulation via subscriptions rather than sold in shops.
9. Additional value created by a crowd acquisition We believe the crowd bid can create value in a number of ways in addition to enabling the merging of the daily and Sunday editions. • Independence brand – The crowd bid should raise awareness around the issues of media concentration, this would enable The Times and The Sunday Times to create a strong brand around high quality independent journalism. • Motivating staff – Partly opening up the paywall as argued above should be welcomed by journalists as it increases their exposure. In addition as a small company a more entrepreneurial culture could be formed with wider employee share ownership. • Opening the door to supportive government regulations - Creating a newspaper with fragmented ownership and a clear corporate governance process opens the door to the government introducing beneficial regulations. For example the government could extend the EIS tax scheme to investments in journalism with an open corporate governance structure. If implemented this could allow investors in the crowd bid to claim 30% of their investment back as a tax rebate. • Loyal readership/shareholder base – The crowd bid should create a loyal base of shareholder/readers.
Make an attractive investment just as you would by buying shares or an ISA, and at the same time help defend our democracy.
How much do we need to raise?
10
We target raising £100m from crowd funding, to firstly purchase The Times and The Sunday Times for up to £50m, with the remainder for investments to take the newspapers to profitability.
How do financial markets value News Corp and its UK newspapers? News Corp is listed in Australia with a market capitalisation of around US$10bn. The majority of its value is from Dow Jones and Australian publishing. The UK newspapers (The Times, Sunday Times and The Sun) are less than 5% of the total value. A number of financial analysts argue that News Corp trades at a discount to what its assets are worth individually. Financial analysts within major investment banks publish breakdowns of News Corps value by its different assets. The valuations for the UK newspapers have the range £120-550m based on the following sample of investment bank valuations. • November 2013 – Value UK newspapers at 5x 2014 EV/EBITDA (5.5x ‘15) based on 2014 EBITDA $181m, 2015 $161m. Leading to an EV of $907m (£550m). • November 2013 – Value UK newspapers based on a forecast of 2014 EBITDA $66m, $38m proportionate share of central costs, at 5x EV/EBITDA this is $190m EV (£120m). • May 2014 – Value UK newspapers at 5.0x 2014E EBITDA, US$230m (£135m). • June 2014 – Value UK newspapers at 4.0x 2015E EV/EBITDA, US$868m (£510m). If we calculate a rough valuation for The Sun we can back out what valuation financial markets are ascribing to The Times and The Sunday Times. In 2013 The Sun’s net income was £62m, therefore on 8x p/e the Sun would be worth £500m. Or at 0.7x EV/sales (in-line with The Mirror) The Sun would be worth £360m. This suggests financial markets are ascribing a zero or negative valuation to The Times and The Sunday Times, therefore any sale would be accretive to shareholders. This makes sense given The Times and The Sunday Times are currently loss making.
Financial markets ascribe The Times and The Sunday Times a zero to negative value. General financial market newspaper valuations • The valuations that financial markets attribute to newspapers have fallen considerably over the last few years due to the structural pressures from the shift to online. • Looking at listed newspaper companies globally EV/EBITDA ranges from 3.3-8.4x. EV/Sales from 0.4-1.7x and p/e from 5.3-18x. FY13 Seven West Media Fairfax APN News & Media Gannet Company Inc The New York Times Co. Axel Springer Johnston Press Mecom Group Trinity Mirror Average
EV/EBITDA EV/Sales 6.0 1.7 8.4 1.2 7.1 1.2 6.5 1.4 8.4 1.6 7.6 1.5 6.1 1.3 3.3 0.4 3.4 0.7 6.3 1.2
P/E 10.0 18.0 8.9 10.1 17.6 6.9 5.3 11.0
Description Western Australia TV, newspapers and magazines Australia and New Zealand newspapers and radio Australia and New Zealand newspapers and magazines Digital platform with 130 publishing websites Newspapers and digital portfolio German newspapers and magazines UK regional newspapers Netherlands and Denmark newspapers and publishing Newspapers and a digital portfolio
Financial Terms EV value of the business EV/EBITDA is the ratio of the businesses value to profit before interest, tax and depreciation. EV/sales is the ratio of the businesses value to sales. P/E is the ratio of the businesses value to profit. A higher ratio indicates a more expensive valuation.
11
What is the valuation of The Times and The Sunday Times? As shown above the implied valuation in the News Corp share price is zero or negative. Therefore a zero value could be argued, for example Alexander Lebedev a few years ago acquired The Independent for £1 because it was loss making. Though there is of course more value in The Times and The Sunday Times, especially given we argue they can reach profitability. As an upside scenario if we assume revenue stabilises at £250m and an operating profit margin of 10% is achieved (vs The Telegraph 18%), then we assume a 10x p/e (vs market c.15x), then the valuation would be £190m. Or if we valued The Times and The Sunday Times at the same EV/sales as Trinity Mirror (0.7x) this leads to a valuation of £245m. There is uncertainty in achieving profitability therefore we argue a valuation up to £50m would be reasonable.
We argue a valuation up to £50m is fair How much remainder is required to take the business to profitability? We argue The Times and The Sunday Times can reach profitability, though this may take a few years of further losses and additional investment. The operating profit losses in the last three years have been £10m, £14m and £6m, though cash investments may be greater than this. Therefore we err on the cautious side and assume that a buffer of £50m should be significant to take the business through to profitability.
£50m remainder to take the business to profitability Target to raise £100m
12
Appendix: Falling print circulation, but total readership is increasing
With free news available online the circulation of printed newspapers is falling. The average print readership of national newspapers is down to 50% of adults in 2013 from 80% in 2000. Over the same period print circulation of daily national newspapers has fallen from around 13m to around 9m today. As a consequence national newspaper revenue has fallen by 8% from 2009 to 2013. However total readership of newspapers including online is actually increasing. The issue is therefore an inability to monetise these online readers, rather than from a reduction in demand for what newspapers produce.
The internet is full of free opinions but this does not replace a team of 450 journalists. Further showing the continued value of the content is that newspaper readers still spend an hour a day reading a newspaper. Newspapers originally provided content for free online and then sought to make money via advertising. However this has proved insufficient. For example even the Mail Online with 150m unique visitors does not generate that much advertising revenue. Therefore newspapers need to in some form charge for content online. National newspaper print circulation 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 The Sun Daily Mail Daily Mirror News of the World
The Mail on Sunday
Sunday Mirror
1,500
1,000
500
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Daily Telegraph The Guardian Sunday Telegraph
The Times The Independent The Observer
Financial Times The Sunday Times Independent on Sun.
(000s) The Sun Daily Mail Daily Mirror Evening Standard Daily Telegraph Daily Star Daily Express The Times i Financial Times Daily Record The Guardian The Independent
2004 3,411 2,485 1,919 395 915 902 957 661
2007 3,218 2,354 1,621 277 911 774 771 670
2010 3,007 2,120 1,218 602 691 779 675 508
423 503 383 249
439 419 384 264
390 324 302 186
(000s) News of the World The Sun on Sunday The Mail on Sunday Sunday Mirror The Sunday Times Sunday Express The Sunday Telegraph The People Daily Star Sunday Sunday Mail Sunday Post The Observer Independent on Sunday
2004 3,845
2007 3,427
2010 2,984
2,364 1,674 1,370 930 751 1,056 557 606 514 460 206
2,303 1,461 1,288 790 683 762 378 514 437 444 248
2,048 1,125 1,145 585 602 533 359 395 337 355 154
2013 2,410 1,863 1,058 696 556 536 530 399 294 275 252 204 77 2013 2,011 1,716 1,039 886 472 435 429 346 284 243 225 114
Source: National Readership Survey 90%
UK Print Ecosystem There are four clearly defined segments in the UK newspaper market, quality (broadsheets), mid-market, popular (tabloids) and the free city newspapers.
Express Mail
70%
SHare of 45+
Source: Trinity Mirror presentation, Enders Analysis based on NRS data
Telegraph
80%
Record
60%
Mirror
The i
50%
Ind.
Sun 40%
Star
Guardian FT
Standard
30% 20% 20%
Times
Metro
40%
60% Share of ABCs
80%
100%
13
Combined readership of national newspapers print and online is arguably growing Print and online readership
The chart to the right shows how total readership including online is significantly higher than only looking at print.
7,289
8,000
6,232
7,000 6,000
This data also understates online readership as it shows The Times as having very few online readers, when we know they have 150k digital subscribers.
5,000 4,000
3,149
3,000 2,000 1,000
408
902
1,220 1,2991,334
1,822 2,094
3,621
2,316
0 Source: Ofcom report on news consumption in the UK - Ofcom analysis of NRS/comScore PADD, March 2013. NRS average issue readership April 2012 – March 2013 fused with comScore March 2013
Print only
Print and website
Website only
Newspapers are still an important part of peoples media consumption. Platform used for news
27 24
25 18 18
20
20
23
22 22
19 20
20 15
15
12
10 5 0 TV
Computer 18 to 24
25 to 34
Source: Enders – Reuters Institute
Print 35 to 44
Radio 45 to 54
Mobile Phone 55+
35%
40%
25% 11%
6%
11% 14%
Source: Ofcom communications market report 2013 – Ofcom news omnibus 2013
TV
25 25
31
30 26 25
Newspapers
32 29 29
30
Radio
32
Computer
37
35
Mobile phone
40
Word of mouth
45 45
78%
Magazines
50
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Other
Average time spent consuming news by device, Feb 2013 (minutes/day)
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Appendix: Early signs of digital success
Newspapers only started charging for content a few years ago, however we are already seeing early signs of success. Digital revenue is already significant – Digital revenue has already increased from 5.5% of UK national newspaper revenue in 2009, to c.14% in 2013 (Enders analysis). Enders analysis forecast that digital could account for 18-20% of national newspaper revenue by 2015, stabilising total revenue. Some newspapers are alreadt successfully monetising content online, such as the FT with c.45% of revenue being digital, while others are not, only 1-2% of revenue is digital for The Express and The Sun. The New York Times is another example of a newspaper that is successfully handling the transition to digital, with growing revenues and 800k digital only subscribers. Cultural shift to pay for news online is starting – All newspapers originally provided content for free online, which people have become used to. This is now changing with newspapers introducing paywalls where readers need to pay a subscription to gain access to content in the last few years. It is a significant cultural shift for people to now pay for news online, but there are signs this is happening. For example the number of people saying they had paid for news online increased from 4% in 2012 to 9% in 2013. This is encouragingly higher among the young at 20% for those aged 25-34 and 24% among tablet users (Reuters Institute Digital News Report 2013 and 2012). Up-take of tablets and smartphones – As highlighted above tablet owners are more likely to pay for news online. Readers attach a higher value to the ease of use of a tablet app, hence it is easier for newspapers to charge for access. Therefore as tablet and smartphone take-up increases this should help newspapers monetise digital content. Tablet penetration has now reached 24% in 2013, up from 12% in 2012 (Ofcom communications market report 2013).
Digital revenue is growing so that it is now 22% of quality newspaper revenue. Popular newspaper revenue (£m) 2000
Quality newspaper revenue (£m) 1200
1829
1040 1640
1614
993
965
1000
1600 1400 1200
1097
1741
1800
800 1020
989
964
1000 788
952
561
600
722
800
517 454
473 630
597
479 431
414442
400
600 400
200
200
46
30
21
63 37
65
70 62
83 82
110106
0
0 2010
Total
2011
Print circulation
Source: Enders analysis
2012
Print advertising
2010
2013
Digital advertising
Total
Print circulation
2011 Print advertising
2012 Digital advertising
2013 Digital circulation
15
Charts showing who has paid for or accessed paid for digital news content By country Significant increase in those who have paid for digital news content from 4% to 9% in the UK from 2012 to 2013.
14% 12% 10%
Tablet owners are more likely to pay for new online, 24%, vs smartphone 18% and computer 12%.
13% 12%
11% 9%
9%
8%
8% 6%
Younger people are more likely to pay for news online, with 20% of 25 to 34 vs an average 9% for all ages in the UK.
6% 4% 4% 2% 0% USA
By age group
France
Germany
UK
By device 30%
25%
20%
All
20%
UK
25%
24%
20%
18%
15% 11%
15%
10%
10% 6%
5%
5%
12%
10% 5%
0%
0% 18 to 24
25 to 34
35 to 44
45 to 54
Source: Reuters Institute Digital News Report 2013 and 2012
55+
Tablet
Smartphone
Computer
Appendix: A partial paywall strategy
16
We argue that the emerging successful online strategy is that of a partial paywall. The Times and The Sunday Times currently operate a full paywall with very little content available for free. We argue their performance could be improved by adopting a partial paywall strategy. Current evidence shows that providing content free online and relying on advertising revenue will not be enough to replace the loss of print revenue for most newspapers. Therefore newspapers need to charge for some of their content online. However with a full paywall this is missing the opportunity to monetise nonpaying customers, gain free advertising on social media and create a loyal base of free readers to up-sell into.
How a partial paywall works A set number of free articles per month – Readers can access a set number of articles for free per month, beyond this they need to pay a subscription. These free articles also excludes higher value content. Some content available for free – The newspapers can provide some content for free with no restrictions such as unpaid third party blogs. Some content can be made available for free as a one off promotion. Or the first paragraph of each article. All content available to search and social media - People are increasingly finding news via search and social media, therefore all news articles need to be indexed in these sites to aid advertising of the newspaper and to allow paying subscribers to share stories they wish. The ability for articles to be shared also increases the reward for journalists. For example it could be that only the first paragraph and headline can be available for sharing. Micro-payments in the future – In the future micro-payments could be used so that you can pay a small amount to read the whole article or view a related video. Micro-payments can be enabled by technologies such as Bitcoin.
Why there is value in non-paying customers and providing some content for free A full paywall assumes there is little value in non-paying customers that only generate advertising revenue. This misses the longer term value from non-paying customers and having a free product offering, for the following reasons. •
•
• • •
Untapped segment – Firstly if a reduced offering can be provided for free that does not cannibalise customers paying a subscription then there is only upside from this. The key here is to create a sufficient gap in quality and format that reduces this risk of cannibalisation. Potential to up-sell – Currently the amount of people willing to pay for news online is low, however this is rising and should continue to do so. Firstly because newspapers only recently started charging for news online; the cultural shift takes time. Secondly, the take-up of tablets is increasing the value of paying for an online subscription. Given this expected upcoming migration it is very important for a newspaper to have a large base of non-paying readers to up-sell into. For example a regular non-paying reader can be offered a promotion to try an element of the paid service Registration increases value of advertising – By requiring readers to register even for free articles increases the value of advertising by allowing greater targeting based on individual information. Ability to make headlines – Newspapers need to make a splash to raise awareness. In the digital world a key way to do this is to have stories that are shared across social media. Having some content available for free enables this. Value of advertising will increase – Video will become an increasingly important part of a newspapers online offering. Video has a higher value for advertising therefore helping newspapers monetise non-paying customers.
See the speech by Mark Thompson ex-Director General of the BBC and current CEO of the New York Times that has successfully executed a partial paywall strategy. (link here)
Appendix: Opportunity to differentiate further
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Newspapers need a change in mind-set to almost view themselves as tech companies, where how the content is delivered is as important as the content itself. We argue that while in the short term the digital transition is negative for newspapers, longer term it could be a positive. A digital offer can be more valuable to readers by offering a wider range of content and it is cheaper to distribute.
Examples of how further differentiation can be created with increased investment The abundance of free news and media content online means that there needs to be a clear strategy for how a differentiated product can be created that consumers will be willing to pay for. We highlight a number of areas where newspapers could increase differentiation. This is not an exhaustive list, but an example of how newspapers prospects can be improved. Tailored service for each reader The front page people view on their desktop, tablet or smartphone should be tailored for each individual based on what they have said they are interested in and what the newspaper knows about them, such as which articles they click on and time spent reading, sharing and commenting on. Another example of this is a tailor made podcast each morning. You set the length and what sort of content you want. It then automatically splices together a podcast from a range material. For example you can choose to have the news in 60 seconds or 5 minutes. It can choose what to include from the information it has on you. You can skip a section just as you would a music track. Multiple forms for each article The majority of journalism still exists in a print ‘mind-set’ where each story comes in one form. For each story there could be a quick one paragraph factual summary, a longer normal journalistic article, an audio file and a video. People should be able to choose how to consume each story, whether they are in a rush, want to listen or have time to read a longer piece. Value in aggregation – incorporate more third party content With so much content available for free online newspapers can create value to customers by aggregating this into one easy to use website or app. Yahoo and Softbank in Japan showed how this can be successful. Though News Corp’s attempt at a news content aggregator website and app was not successful. Newspapers are well placed to aggregate content as they have strong brands that people identify with, they already have traffic and they have the scale to invest in a strong platform. Examples of content could be for speciality professions, hobbies and sports. The platform would enable customers to view all their content through one portal and enable the smaller content producers to access a larger audience. While numerous third party aggregators exist, there is value in having all your content in one place. Increased use of video content Video content has a higher advertising value than a text article as viewers can be forced to watch a pre-roll advert. Therefore newspapers should increase production of video content. Longer term there could also be potential to move into the over the top TV market. Currently the majority of TV is delivered by a broadcaster at the allotted time. However there is a rise in over the top services such as Netflix and Youview. The take-up in smart TVs allows any website to have a smart TV app that enables people to watch their content on the TV. Use of such services is currently low, but at some point this will change and newspapers have only upside in capturing some of the TV market by leveraging their strong brand and journalist team.
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Appendix: Influence of the press barons 80% of newspaper circulation is controlled by 5 families
The Sun Daily Mail Daily Mirror Evening Standard Daily Telegraph Daily Star Daily Express The Times i Financial Times Daily Record The Guardian The Independent
Daily Sunday Circulation Market Circulation Market (000s) share (000s) share 2,410 26% 2,011 25% 1,863 20% 1,716 22% 1,058 12% 1,468 18% 696 8% 0 0% 556 6% 435 5% 536 6% 346 4% 530 6% 472 6% 399 4% 886 11% 294 3% 0 0% 275 3% 0 0% 252 3% 284 4% 204 2% 225 3% 77 1% 114 1%
Owner Rupert Murdoch (News Corp) Lord Rothermere Listed, no controlling owner Alexander Lebedev Sir David and Sir Frederick Barclay Richard Desmond Richard Desmond Rupert Murdoch (News Corp) Alexander Lebedev Listed, no controlling owner Trinity Mirror (listed, no controlling owner) The Scott Trust Alexander Lebedev Source: National Readership Survey
History of recent press baron influence on UK politics Selected quotes from the Leveson Inquiry and other evidence showing the influence press proprietors have had on UK politics. Quotes also explain why politicians have failed to act. There is a natural focus on Rupert Murdoch as the current most powerful press baron. However this is not about Rupert Murdoch, but about the fact press barons have always controlled our press and we now have an opportunity to change this. See the BBC4 documentary ‘The Prime Minister and the Press Barons’ for the history of the press barons influence since the 19th century. Rupert Murdoch provided support for the Conservatives during the 1980s, the statement from David Mellor (former conservative MP and cabinet member) to the Leveson Inquiry shows the influence he received in return. “By the time Murdoch came to establish Sky, a brave entrepreneurial investment that deserved to succeed, and a process I was happy to help along in the Broadcasting Act 1990, he was used to Ministers doing his bidding, rather than the other way around. He was personally charming to deal with, but he was one of the few people, apart from Heads of State, I, as a minister, had to visit at his premises rather than him having to schlepp over to the Home Office.” However on the other side of this Labour were attacked vigorously. As shown by this quote from Jack Straw MP’s witness statement to Leveson inquiry: “and from the fact that Mr Murdoch has played a ’power game’ with political leaders. Few of us who took part, for example, in the 1992 General Election are in any doubt that the Sun’s approach lost us seats. That was their purpose, and it is disingenuous for any now to deny this” Rupert Murdoch switched support to Labour in 1995. Tony Blair had made a concerted effort to win over the support of Rupert Murdoch. Piers Morgan in his diaries wrote that Tony Blair told him “Piers, I had to court him…It is better to be riding the tiger’s back than let it rip your throat out. Look what Murdoch did to Kinnock” John Major in a statement to the Leveson Inquiry made it clear that Rupert Murdoch had tried to influence him and his decision not to listen had led to Murdoch’s opposition of the Conservatives. “...In the run-up to the 1997 election, in my third and last meeting with him on 2 February 1997, he made it clear that he disliked my European policies which he wished me to change. If not, his papers could not and would not support the Conservative Government. So far as I recall, he made no mention of editorial independence but referred to all his papers as “we”. Both Mr Murdoch and I kept our word. I made no change in policy, and Mr Murdoch’s titles did indeed oppose the Conservative Party...”
19 Many Labour MPs after so many years in opposition thought they had to court the Murdoch press in the 1990s. This is shown in Harriet Harman MPs witness statement to the Leveson Inquiry. “7. I was on the Labour front bench as we drew up our manifesto for the 1992 General Election, in which we committed to safeguarding press freedom and removing unjustified restrictions on broadcasting, but also pledged: ’If the press fail to deal with abuses of individual privacy, we will implement the Calcutt Report’s recommendations for statutory protection’ To ’establish an urgent enquiry by the Monopolies and Mergers Commission into the concentration of media ownership’. We felt that because we made these pledges and because we were committed to introducing a robust press complaints system and tackling media monopoly, the Murdoch press was determined to stop us getting into government. The Labour Party went on to receive extremely hostile coverage from newspapers owned by Rupert Murdoch. We then lost the 1992 General Election. 8. As we approached the 1997 election, Tony Blair pursued a different approach towards the media. Although none of us wanted to be in the position of "courting, assuaging and persuading" the media, as Tony Blair later said in what came to be known as his ’feral beast’ speech of 12 June 2007: "after 18 years of opposition and the, at times, ferocious hostility of parts of the media, it was hard to see any alternative." And I agreed with him. 15. Concentration of newspaper ownership gave Murdoch a sense of invincibility. I believe that the wrongdoing in News International went unchecked because their size gave them too much power. News International owns too many newspapers. Controlling 37% of national circulation before the News of the World closed, owning two of our most influential dailies and two of our most influential Sundays, was too much.” Labour then broadly enjoyed the support of the Murdoch press until in 2009 when The Sun announced it was switching support to the Conservatives on the day Gordon Brown gave his speech to the Labour party conference. This transition is shown by the following quotes from the Leveson Inquiry witness statements. Peter Mandelson, “It became very clear in the summer of 2009, when Mr. Murdoch junior gave the MacTaggart lecture, that News International had a highly politicised agenda for changes that were in the media policy of this country, and there seemed to me to be very little point in talking to them about this.” Gordon Brown, “…I think, as I said, also there was a new agenda that Mr. James Murdoch was promoting about the future of the media policy in Britain. So I was not surprised at all when The Sun – I was perhaps surprised about the way they did it ... but the act of deciding to go with the Conservatives, I think, had been planned over many, many months.” Andrew Neil on Cameron seeking Murdoch’s support in 2007, “….It was in this predicament – with a fourth defeat for the Tories staring them in the face – that Mr Cameron reached out for Mr Murdoch and his newspapers, with consequences that are now being revealed and documented” Cameron on his decision to fly to a Greek island to meet Rupert Murdoch “Well, from my point of view, it was just a better opportunity to try to get to know Rupert Murdoch better. Obviously I was trying to win over his newspapers and put across my opinions, so for me it was just an opportunity to try and build that relationship.”
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General quotes on press baron influence Below we include a selection of quotes from the Leveson Inquiry showing the general influence of press barons on politicians. Vince Cable (Lib Dem MP) “In my opinion as a politician, I also believed that the Murdochs’ political influence exercised through their newspapers had become disproportionate. The accusation that leading political figures in the Conservative Party and the Labour Party had offered disproportionate access to the Murdoch’s was widely made, as was the perception that both parties had shown excessive deference to their views (as expressed through News International newspapers)” Andrew Marr (Journalist) “Thatcher, Major and Blair governments, the Murdoch stable was always perceived by its rivals to have a privileged position. “This was because of its spread and power as a publishing group, and Mr Murdoch’s readiness to use papers such as the Sun to intervene aggressively. But it made close social relationships, at Murdoch parties or Oxfordshire get-togethers, peculiarly disheartening for press rivals” Tony Blair (Former Labour PM) “Most important of all, certain of the newspapers are used by their owners/editors as instruments of political power, in which the boundary between news and comment is deliberately blurred, i.e. they do not report political news in a carefully objective way; but rather to promote a point of view. This is not confined to the tabloid press. So if you combine this genre of writing with this use of the media, the effect is very powerful.”
Tony Blair went onto highlight how this influence was used to further the political views of the proprietors. “I have identified the use of media as instruments of political power. I believe this is more important than the use of the power to advance specific business interests. In my view, this is the wrong paradigm. Of course they have such interests and will defend them. But the principal purpose of using such power is, in my judgement, as much political i.e. to advance views as it is about interests” “As far as lobbying, as I say Rupert Murdoch never lobbied me for special favours. What he did do was argue strongly with me about politics. He has decided views. On some issues, I agreed and on some I disagreed. So any ’lobbying’ Alastair Campbell refers to, was probably much more to do with our constant and on-going disagreement over Europe or public investment than some business interest.” Tony Blair also highlighted how it has been very difficult for politicians to challenge the power of the press. “However, undoubtedly, it means that even if a political leader came to the view (as I did) that there was something seriously damaging in the relations between politics and the media, and in the way certain papers behaved, it would, frankly, have been very tough to have waged a campaign on it, or tried to produce a policy solution to it. My own experience in respect of the speech I gave in June 2007 shortly before leaving office, is instructive. The speech - after all from a Prime Minister with 10 years in office - was either ignored or derided, except in some more considered circles of journalism already anxious about the issue. It has taken recent events to make this a permissible debate” Despite declining circulation newspapers still play a significant part in setting the political agenda. As shown by a further quote from Tony Blair to the Leveson inquiry. “They [newspapers] influence hugely the agenda of the broadcasters who tend, in my experience, to default to the print stories in choosing which broadcasting stories to go with.”
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Why politicians have failed to solve this Despite this significant evidence from politicians and journalists on the influence press barons have exerted over our politicians for decades there was limited discussion in the Leveson report on potential structural (ie ownership) solutions. This underlines the argument made by Tony Blair that it is very difficult for politicians to challenge the power of the press and hence its proprietors. Especially if those proprietors are willing to use their newspapers to exert influence. Out of 1,987 pages in the Leveson Inquiry report there was only one paragraph on structural solutions. Vol III, Ch. 9, “Ofcom note that structural remedies offer clarity and certainty, can deliver long term benefits and do not require ongoing monitoring. They also note that such remedies may be ineffective if the divested interests are commercially unsustainable. Structural remedies can act as a disincentive to investment and innovation and represent a significant regulatory intervention and impose potentially significant transition and transaction costs on the parties concerned.” The Leveson report then stated that the question of what constituted sufficient plurality, (ie does one owner control too great a proportion of the newspaper market) was a technical matter for Ofcom. In reality plurality is one of the most important questions when looking at the press. Vol III, Ch. 9, “This does not amount to a requirement for a detailed prescription on what constitutes sufficient plurality or the technical means of achieving it” In reference to market share caps or other measures to ensure sufficient plurality, “These are largely technical regulatory issues on which I see no need to reach a definitive view. The need to have a mechanism to take account of organic growth and market exists seems unarguable, but the precise mechanism for doing so is essentially a technical issue on which the Inquiry is not best placed to reach a definitive conclusion.” The recommendation on plurality is weak and unlikely to lead to any meaningful change, “I therefore recommend that the Government should consider whether periodic plurality reviews or an extension to the public interest test within the markets regime in competition law is most likely to provide a timely warning of, and response to, plurality concerns that develop as the result of organic growth recognising that the proposal for a regular plurality review is more closely focussed on plurality issues.”
Appendix: Useful information Further information on proprietors influence on UK politics The BBC4 documentary ‘The Prime Minister and the Press Barons’ runs through the history of newspaper proprietor influence on politicians. Leveson Inquiry website, (Link), selected submissions from politicians and journalists. • Tony Blair, former Labour Prime Minister (Link) • Gordon Brown, former Labour Prime Minister (Link) • Vince Cable, Lib Dem MP (Link) • Harriet Harman, Labour MP (Link) • John Major, former Conservative Prime Minister (Link) • Peter Mandelson, former Labour MP (Link) • Andrew Marr, journalist (Link) • David Mellor, former Conservative MP (Link) • Andrew Neil, journalist (Link) • Jack Straw, Labour MP (Link) Selected Leveson submissions on press plurality. • Enders Analysis, Media Ownership Rules, (Link) • Prof Steven Barnett, A New Framework for Media Plurality, (Link) House of Lords Select Committee on Communication, “The Ownership of the News”, 2008 (Link) Book, “Murdoch’s Politics - How one man’s thirst for wealth and power shapes our world”, David McKnight, 2012. Book, “The Man Who Owns the News – Inside the secret world of Rupert Murdoch”, Michael Wolff, 2008.
Further information on the newspaper industry Reuters Institute Digital Report 2013 and 2012. (Link) Mark Thompson speeches. Ex Director General at the BBC, current CEO of The New York Times. (Link) Ofcom report, News Consumption in the UK 2013. (Link) Ofcom report, Communications Market Report 2013. (Link) C.W Anderson, Emily Bell and Clay Shirky. Columbia Journalism School. “Post Industrial Journalism: Adapting to the Present” (Link) Enders Analysis, “National Newspapers: Digital Signs of Life”, 2013. (Link)
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