Another Title Bites the Dust

When I learnt yesterday that Trinity Mirror (LON:TNI) had decided to pull the plug on New Day just nine weeks after the title’s triumphal launch, I felt a twinge of sadness and a stab of guilt. Sadness because I have a very British love of newspapers and I would like to see the sector prosper; and guilt because I had never once read this new offering – I hadn’t even given it a chance. That was probably because I had heard it described as a feature-oriented daily pitched mainly at a time-poor female audience. It sounded like the media equivalent of kitsch fast food. I would surely have got round to buying a copy one day just out of curiosity; but now I shall never have the chance.

New Day had hoped to sell about 200,000 copies a day, but sales are reported to have fallen back to about 40,000 after some initial success. The bigshots at Trinity Mirror knew that newspaper circulations had been falling for years, but they thought there might be a gap in the market. Evidently they miscalculated. This has done nothing to help their share price, which has declined from 181 pence on 15 October last year to about 115 pence today.

Back in February The Independent, which is owned by Evgeny Lebedev’s ESI Media (a private company), announced that its print edition would cease and that it would become a digital-only newspaper in March. Subscribers pay a standard rate of £12.99 per month to get access to the journalism of the same line-up of names who wrote for the physical newspaper. They include editorial talent such as Robert Fisk, Patrick Cockburn, Simon Calder and Grace Dent. ESI Media claims to have a global monthly audience of 70 million unique users[i] but it is not clear how many of those have decided to part with their credit card details.

Evgeny Lebedev, who is the son of Russian oligarch Alexander Lebedev, actually moved to London at the age of eight (where his dad worked for the KGB) and had a British education. He has dual British and Russian nationality so it is not correct to describe him as “Russian” as many do. He is credited with having built up the youngest British media empire. In 2009 he bought the London Evening Standard – the editorial and financial fortunes of which he transformed. He made the Standard a give-away newspaper financed by advertising revenues alone. Its daily (five days a week) circulation surged to an estimated 900,000. And last year, the Standard made a profit of £5 million. Further, in 2014, ESI launched London Live, the first local London television channel. ESI anticipates that London Live will break-even by 2017.

The biggest circulation newspapers in the UK are The Sun, owned ultimately by Rupert Murdoch’s News Corp. (NASDAQ:NWSA) and The Daily Mail, owned by Daily Mail and General Trust PLC (LON:DMGT). But even these iconic titles have suffered a long drawn-out decline in their circulation figures. As recently as 2010 The Sun sold over 3 million copies per day; now that is down to around 1.7 million. Over the same period The Daily Mail’s circulation has fallen from 2.12 million to 1.59 million. The biggest-selling broadsheet newspaper, The Daily Telegraph, privately owned by the media-shy Barclay brothers, has also lost ground, declining from 691,000 to 472,000[ii].

If you think that top-end purveyors of specialist information are less vulnerable to the overall trend, just consider that even the venerable Financial Times’ circulation has more or less halved over the last six years. That was one factor behind the sale of the title by Pearson PLC (LON:PSON) to Japan’s Nikkei Group in July last year.

Shares in Daily Mail and General Trust PLC have fallen from 980 pence in mid-July last year to 698.50 pence today. This veteran media group, run by the great-grandson of its founder, one Harold Jonathan Esmond Vere Harmsworth, 4th Viscount Rothermere, has sought to use its cash cow core brand to finance expansion into digital technology. On 11 April it was reported that DMGT was considering a bid for iconic internet brand Yahoo! (NASDAQ:YHOO.US). It’s not clear how DMGT, whose core market – print media – is in decline, could benefit by acquiring a failing internet brand. Yahoo’s sales have fallen by 50% over the last 10 years. Some months ago the company announced plans to axe 15% of its workforce. With the shares down around 30% since the end of 2014, Yahoo is under pressure from activist shareholders. Some have even demanded the replacement of the entire board.

The popular wisdom is that newspaper circulation is in decline because more people are sourcing information on the internet – which is no doubt true – but that does not entirely explain why people, and especially millennials, are losing the newspaper habit.

If you would like to hold at least one print media stock in your portfolio, here is the one that takes my fancy. Sales of specialist, high-quality magazines like New Scientist and Farmer’s Weekly have held up well and have an international following. Both of these titles, along with many more, are owned by Reed Business Information, which is in turn owned by the Anglo-Dutch media group Relx PLC (LON:REL). Relx is expected to post a growth in EPS of 12% this year which would give it a forward P/E ratio of just under 18. Dividends per share have been increasing at a compound rate of nearly 8% over the last five years. Relx’s shares were up by almost 30% between last August and 19 April when they hit 1,300 pence, since when they have retreated by almost one pound. The sell-off may have been overdone.

The demise of the newspaper industry has been long foretold and yet it has proven surprisingly difficult to migrate the paper-and-ink model to digital-only platforms. Give me paper and print every time – but then I’m probably a dying breed.

Oh goody, my copy of New Scientist has just arrived.

[i] See: http://esimedia.co.uk/esi-media-launches-the-independent-daily-edition-with-subscription-marketing-campaign/

[ii] Figures at: https://en.wikipedia.org/wiki/List_of_newspapers_in_the_United_Kingdom_by_circulation