How UK newspaper industry passed its 'pandemic stress test' – Press Gazette

Fighting for quality news media in the digital age.
An extract from journalist Marc Edge’s new book Re-examining the UK Newspaper Industry.
By Marc Edge
The newspaper industry was already considered beleaguered when the Covid-19 pandemic began in 2020, and the economic and social disruption it soon brought threatened to finish them off. Predictions had been made for decades that new media would soon kill off printed news. First it was radio in the 1920s, then television in the 1950s, and finally the internet in the 1990s, but newspapers proved adaptable and resilient.
By the early years of the 21st century, most were highly profitable. National newspapers no longer sold millions of copies a day, but copy sales were never what drove their profits. Advertising was what had filled the coffers of press barons from the days of Northcliffe and Kemsley, and with the rise of mass marketing it grew after World War II into a long-lived bubble.
In the internet age, however, websites began to siphon off their rich advertising revenues. Classified ads were the first to go, as specialised sites for homes, autos, and situations vacant offered sortable databases of listings for house hunters, car buyers, and job seekers. Then the so-called Great Recession of 2008-09, the longest and deepest since the 1930s, crashed the economy and burst the advertising bubble. Some advertisers never returned to newspapers even after the economy recovered, having found cheaper alternatives online.
The online advertising alternatives weren’t just cheaper, they were also more effective. The classic complaint of newspaper advertisers was articulated by Unilever founder Lord Leverhulme more than a century ago when he said: ‘Half the money I spend on advertising is wasted, and the trouble is I don’t know which half’. The ability of websites to follow users around online with pieces of code embedded on their browsers called ‘cookies’ allowed them to gather vast amounts of data. This enabled the perfection of target marketing and ushered in an era of surveillance capitalism’.
Google proved the master at this, pairing the data it compiled on users of its popular search engine with its AdSense and DoubleClick online ad businesses. Facebook wasn’t far behind, using the data it gathered on members of its social network to sell ads tailored to their interests. The digital advertising which newspapers hoped would flow to their online editions to replace the print ads they had lost instead went mostly to Google and Facebook. Most publishers in fact used AdSense on their own web pages because it was so effective.
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Then the pandemic hit in March 2020. Advertising dried up as business ground to a halt. Commuters stayed home and shops shuttered as lockdowns were ordered to cope with successive variants of the virus. Newsstand sales plummeted as a result. Newspapers responded by making workers redundant. The giant chain Reach plc furloughed a fifth of its 4,700 staff that April under the Government’s coronavirus job retention scheme, which paid 80% of their wages. It also cut the pay of its remaining staff by 10% for three months, with senior managers taking a 20% cut.
Reach, which had recently changed its name from Trinity Mirror to signify its growing size, was the largest UK chain with approximately a fifth of both the national and provincial newspaper markets. It was also one of the few publicly traded chains, and it was thus required to report its finances quarterly for the benefit of investors. Its announcement in July 2020 suggested the scale of the pandemic’s effect on the press. With its second-quarter revenues down by 27.5%, Reach made 550 workers redundant, or about 12% of its workforce, including about 325 in editorial and circulation. The permanent job cuts were designed to save Reach £35m a year and they cost it £16.5m in severance payments.
Ironically, however, newspapers had more readers than ever despite their plummeting print sales as people increasingly went online for news during the pandemic. Traffic to the Financial Times website, which dropped its paywall for Covid news, surged 250%. saw a 60% increase, while the number of unique visitors to the Guardian’s website almost doubled. It was a phenomenon that had been noticed for years. As their print circulation went down, newspapers gained readers online. The problem was that their online readers were mostly free riders, as British newspapers largely hesitated to charge readers for access to their online content for fear of losing traffic and thus ad revenue, but increasingly ads were eluding them.
The Financial Times introduced a paywall in 2007, however, that was designed to maximise revenue from both online ads and online subscriptions. It allowed readers a number of free articles every month, thus letting most traffic through, before asking regular readers to subscribe in what was called a ‘metered’ paywall. It worked so well that Japanese publisher Nikkei paid £844m for the FT in 2015.
Most UK publishers were reluctant to put their online content behind a paywall, however. One reason was the lack of a subscription culture given that three-quarters of newspaper copy sales in the UK were made at newsstands, unlike in most other countries where they were mostly delivered to homes. A multi-country study by the Reuters Institute for the Study of Journalism at Oxford also found that the UK lagged in paywalls because of its highly competitive national newspaper market, in which leading titles feared losing market share.
One paywall adopter was News UK, whose owner Rupert Murdoch ordered a ‘hard’ paywall around the websites of its Times newspapers in 2010, with no free articles. Another strategy Murdoch used was to push for Google and Facebook to pay publishers for news stories they linked to, claiming the digital platforms were stealing their content. He once called Google a ‘content kleptomaniac’ and threatened to licence his company’s articles to Microsoft’s rival search engine Bing.
In early 2010, News UK blocked the aggregator NewsNow, which offered a paid service to subscribers, from linking to content from its websites. The social network MySpace, which Murdoch bought in 2005 for £304m, briefly partnered with Google in an ad deal until MySpace was surpassed in popularity first by Bebo and then by Facebook.
By 2021, however, the financial fortunes of the UK press had made a dramatic recovery despite the ongoing pandemic. Some newspapers reimbursed the government for furlough payments, including the Telegraph and the Guardian, while others, such as the Times and Daily Mail, never used the scheme. Reach announced early in the year that it expected to declare a 2020 profit of between £130m and £135m due to its record digital performance.
While its print sales were down about 12% in the second half of the year, its digital revenue had increased by 13.4% in the third quarter and almost 25% in quarter four. Reach even agreed to repay the £4m it had saved from staff pay cuts, but not before a group of its workers lodged an employment tribunal claim for unlawful deduction of wages. By mid-year, the company’s finances looked even better, as it announced that thanks to strong growth in digital advertising its profit for the first six months of 2021 was £68m and its profit margin had increased from 19% to 23%.
One indicator of the newfound press prosperity came in early 2022 when Reach released its 2021 annual report, which showed that its operating profit had risen to £146m. It also revealed that the remuneration of its top executives, including incentives, had risen by 700% that year, including an increase for its CEO from £485,000 to £4.09m. DMGT paid its top executives even more in 2021, with its CEO making £9.7m and its chief financial officer £6.6m. DMGT chairman Lord Rothermere exceeded even that, grossing £10.9m, an increase of almost half from the £7.34m he was paid in 2020.
The 4th Viscount Rothermere, who had been born Jonathan Harmsworth, was the great-grandson of company founder Harold Harmsworth and the largest DMGT shareholder with 37% of its stock. In late 2021, he bought out other shareholders at a reported cost of £3 billion and announced he would de-list DMGT from the London Stock Exchange and take the company private.
Newspapers were simply picking up where they had left off when the pandemic struck. Quietly, amid all the official inquiries and fears for their future, newspapers had grown more prosperous than they had been in years. A decade on from the economic shock of the 2008-09 recession, they seemed to be finally coming to grips with the disruption to their business model caused by the Internet. The national newspapers each seemed to be finding their own way differently to profitability in the brave new online world.
The Daily Mail kept its website free, and by focusing heavily on celebrity news and other clickbait, or what its online editor called ‘journalism crack, it passed the New York Times in 2011 as the most widely read English language news website in the world. Its owner DMGT did not report in its quarterly and annual reports to shareholders the financial details of its newspaper division DMG Media, which also published the Metro and i dailies, separately from its corporate events, property information, and venture capital businesses.
As a subsidiary, however, DMG Media had to file annual financial statements with corporate regulator Companies House under its original name of Associated Newspapers. They showed that its earnings (before interest, taxes, depreciation, and amortisation, or EBITDA) rose 16% in its 2020-21 fiscal year to £75.5m, while its profit margin rose to 12.7%.  
News UK could thank its hard paywall for helping its subsidiary Times Newspapers almost double its earnings in the company’s 2019-20 fiscal year to £26.3m. EBITDA at the Telegraph rose 25% to £40.4m in 2021 as its digital subscription revenues grew by 40% to £44.1m. It had 577,720 subscribers to its premium online content, it announced, and seven million registered readers of its free online content. Even the Guardian, which had lost tens of millions of pounds a year for almost a decade, made money in 2021 after simply asking its readers to contribute voluntarily. Its 2021-22 profit would reach £20.7m.
Profits in the provincial press were also robust, contrary to public and even official perceptions. Companies House filings showed that Newsquest Media Group Limited recorded earnings of £35.6m in 2021 as its profit margin rose to 25.1%. Reach Regionals Media Limited saw its earnings increase to £29.3m in 2020 and its margin to 20.5%. Even JPIMedia, which was formed when Johnston Press went bankrupt in 2018 because of its enormous debt, made £12m in 2021 at a profit margin of 13.9%. Johnston Press was a conundrum in that it was highly profitable at the time of its bankruptcy, with a profit margin above 20% from 2014 until 2017, when it slipped to 19.9%.
The extent to which the improvement in newspaper fortunes since 2015 had escaped official notice was exemplified in early 2022 when then-Secretary of State Nadine Dorries released Murdoch from his long-standing pledge to keep the Times and Sunday Times separate. The undertaking had been in place since 1981, when he bought the papers, and had been intended to safeguard media plurality. As the first year of the pandemic was ending, however, News UK asked to be released from the expense of keeping the titles separate, including the salaries of six independent directors. “The direct and indirect costs of maintaining the undertakings in the current circumstances risks adversely impacting the quality of journalism at The Times and The Sunday Times and, ultimately, the economic viability of the two titles.”
It noted the declining print circulation and advertising revenue of its Times papers but made no mention of their growing online revenues. The Covid-19 crisis, it claimed, had put publisher costs ‘under further and unprecedented pressure, which is unlikely to abate in the short to medium term’. Dorries agreed that there had been a ‘material change of circumstances’ in the newspaper industry and lifted the restrictions after a consultation brought no objections.
The 2020-21 annual report for Times Newspapers Limited filed with Companies House the following month, however, showed that its profits had doubled again to £52.5m. Its revenues had risen by £17m, or 5%, thanks to strong growth in digital advertising and subscription revenues, as well as cover price increases which more than offset declines in print circulation and advertising.
Online subscriptions had grown by 31,000 in the previous 12 months to 367,000 and represented 63% of Times subscribers. Inclusion of its content in the Apple+ online news service had attracted younger readers, with women rising to 56% of subscribers from 50% in 2020.
Turning threats into opportunities is a basic business school technique, but the special pleadings of newspaper owners stretched the limits of selectivity. They had passed their pandemic stress test with aplomb and were making good profits, but still they pushed for regulatory largesse.
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