Special Reports - Publishing industry - Brought to book

Advertising and circulation figures are falling but the big players are still performing. What is really going on in the publishing industry, asks Liz Fisher.

A few years ago, it was widely predicted that the internet would mark the beginning of the end for the traditional publishing industry. We were told that people would begin to get out of the habit of buying a daily paper, or their favourite magazine, choosing instead to read the many online news and features sites that were available to them for free. Newspapers in particular would be squeezed still further by the 24-hour rolling news culture developed by television stations worldwide.

Some went as far to say that the age of the printed word was coming to an end.

While the predictions have not been fulfilled with the spectacular crash that many expected, at the beginning of 2004 the UK publishing industry is certainly enjoying mixed fortunes. Overall advertising spend across all media formats is dropping steadily and newspaper circulations are falling.

Even so, the large publishing companies are continuing to post respectable results. So what is going on?

The publishing industry is one of the most important in the UK. According to the Department of Trade and Industry, it employs more than 160,000 people and is worth around 22bn, making it double the size of the pharmaceutical sector. Turnover for newspapers, books, journals and magazines totalled 18.4bn in 2000 and consumer spending on media products has almost doubled since 1985, rising from 3.5% of net income to 6.8% in 2000. The UK dominates the European publishing industry, thanks mainly to the demand for English language books. It is second only to Denmark in the book publishing market, producing 1,625 titles per 1m population (against the EU average of 1,029 per 1m population).

Challenging times

The past few years, though, have been challenging for many publishers.

Newspaper circulation has fallen steadily for the past 30 years and advertising revenue has seen two major downturns. The development of electronic media has also been a major challenge for many newspaper and magazine publishers, as they work out their role in the electronic world.

A report on the future of the publishing industry, produced by PricewaterhouseCoopers in 2000, made a number of predictions:

•   The newspapers that would be most likely to maintain their circulation levels would be those with 'strong community loyalties, whether ideological or geographical'.

•   Classified advertising revenues would be 'decimated' by electronic media, and online auctions would divert revenue from the classified pages.

•   Online media will corner the market for breaking news, causing newspapers to focus on features and analysis, the traditional ground for periodical magazines.

•   The internet will polarise the magazine industry between those delivered exclusively online and those distributed in the traditional manner.

The report concluded that 'the sector landscape will change dramatically over the next two years, resulting in both notable success stories and some wreckage along the way'.

Did PwC get it right? There are certainly signs that advertising revenue has fallen steadily over recent years, although it remains difficult to assess whether electronic media is the root cause. Certainly, electronic magazines have not taken off, although daily news (and celebrity gossip) has found a strong niche on the internet.

Advertising spend is closely linked to GDP but is generally much more volatile. A slump in the economy hits advertising revenue hard, but the more recent economic downturn, and the corresponding fall in advertising spend, has not affected the publishing sector uniformly. 'We saw a 10% to 15% fall in advertising revenue in 2002 and it carried on falling in 2003,' said David Trunkfield, who leads the media sector of PricewaterhouseCoopers' Strategy Group. 'But national newspapers and business magazines have suffered a lot worse than other sectors.' These publications suffered particularly badly because the economy has been largely consumer-driven over the past few years. Consumer companies have continued to spend on advertising in their natural home: consumer magazines and regional newspapers. The brand-driven advertising that is the lifeblood of newspapers and business magazines, over the same period, fell back.

The latest figures from the Advertising Association (see box 1) show a fall in real terms of over 6% in advertising spend on national newspapers and business magazines between the third quarter of 2002 and the third quarter of 2003 in the last. During the same period, advertising spend increased in real terms in only two areas: radio advertising and outdoor advertising.

Trunkfield said that the industry is expecting advertising spend to improve steadily in 2004. For national newspapers, though, advertising is not their only problem as almost all have, over the past 30 years, been steadily losing readers. Three years ago, The Times began a pricing war but the strategy failed to attract a sustainable increase in readership and The Times' cover price has risen from 30p to 50p since September 2002. 'Circulation revenues have been increasing strongly for the national newspapers because they have put prices up relatively aggressively, which is very good news for them' said Trunkfield.

The latest figures from the Audit Bureau of Circulations (see box 2), though, show a fall in circulation for almost all of the national papers over the past 12 months. The exceptions are the Daily Star, which has taken readers from other 'red tops' thanks to a combination of celebrity gossip and topless models rather than hard news, and, interestingly, The Independent.

Going tabloid

The Independent's rise in readers has been attributed to its decision to produce a tabloid-sized version of the paper, which has proved a big hit in commuter regions. It is estimated that sales of The Independent rose by around 20,000 a day after its tabloid version was launched on 30 September 2003. The Times followed suit with its own tabloid version in November 2003 and at one point was estimated to be selling 35,000 extra copies on an average weekday.

'The tabloid versions seem to be doing well so far but it is too early to tell whether they will have a long-term effect on circulation,' said Trunkfield.

There have been persistent rumours that other broadsheets will follow The Times and Independent, most notably the Daily Telegraph. The sudden change of ownership of the Telegraph group, though, from Lord Black to the Barclay brothers following the boardroom revolt at Hollinger International, the group holding company, may have put those plans on indefinite hold.

But what about the prediction that the internet will eventually replace our habit of buying a daily paper? Trunkfield points out that circulations had been falling for many years before the internet was developed, so it is by no means proven that electronic media will mark the end for printed news. 'The print format is still more convenient to read and the evidence suggests that people are using the internet for the most up-to-date information. The internet has probably had the most impact on business magazines, as many publishers are selling a subscription to the website along with the magazine subscription. That works for specific audiences. As far as we can tell, the internet has had very little impact on consumer magazines.'

Research carried out for the European Interactive Advertising Association suggests that newspapers account for 13% of Europe's overall media consumption.

The internet accounts for 10% and magazines account for 8%. Even so, advertising spend on the electronic media still only accounts for around 1.5% of the total spend across Europe. Clearly, these figures suggest that print advertising could fall still further.

According to Trunkfield, the next few months and years will see publishing companies formulate clearer business models for their electronic interests, as most have already laid down the groundwork with capital investment in internet websites and technology. If advertising revenue does improve as has been predicted, 2004 could see the start of a boom time for publishing.

Reed all about it

Certainly, the larger publishers are reporting strong results, in spite of the difficult advertising market. The Anglo-Dutch group Reed Elsevier reported a 13% rise in turnover to just over 5bn in 2002, although turnover for the first half of 2003 was slightly down on the previous year. Reed's CEO, Crispin Davis, said that the group 'continues to see significant opportunities for growth and has a good pipeline of initiatives to deliver on them', despite challenging trading conditions. In its latest interim statement Emap agreed that the environment was 'tough', but reported a 7% rise in turnover to 509m for the six months to September 2003 and an 8% rise in operating profit (excluding goodwill) to 103m.

In the first six months of 2003, Emap was the fastest growing publisher in the UK, increasing its market share in terms of retail sales value (measured as average circulation x frequency x cover price) from 15.5% to 17%. The group said in its interim announcement that the UK magazine market was 'far from mature'. If Emap is right, the battle for readers will continue.

MAGAZINES AND THE BATTLE FOR BLOKES

There has been steady growth for the UK magazine market recently. The latest figures from the Audit Bureau of Circulations showed a rise of 1.6% in the second half of last year compared to the same period in 2002, boosted by the popularity of home interest, news and current affairs titles.

One of the more lucrative targets for magazine publishers - men between the ages of 18 and 35 - was the battleground of two of the largest magazine publishers in the UK at the beginning of this year. In January, IPC launched a new weekly magazine aimed exclusively at men, the 'world's first men's weekly', according to the company.

'The men's weekly market is bursting with potential,' said IPC chief executive Sylvia Auton. The imaginatively-titled Nuts is a heady mix of cars, sport, 'real-life stories', news and, of course, pneumatic women in their underwear. Not to be outdone, Emap launched a similar publication, Zoo Weekly, two weeks later. IPC will spend 8m marketing Nuts in 2004, while Emap will spend 8.5m on its launch.

Both magazines are undoubtedly aiming to reproduce the phenomenal success of Emap's weekly gossip magazine, Heat. With two similar magazines competing for a weekly circulation that has been put at 350,000 between them, though, there are wide predictions that only one will come out as the eventual winner.

1: Advertising spend Q3 2003 ad spend % change m Q3 2003 to Q3 2002, (inflation adjusted) National newspapers* 428 -6.5 Regional newspapers 739 -0.1 Consumer magazines** 190 -2.6 Business magazines 289 -6.3 Total press 1,645 -3.2 *Includes supplements **Excludes supplements. Source: Advertising Association. 2: NATIONAL DAILY NEWSPAPER CIRCULATIONS - DECEMBER 2003. Title Dec 2003 Dec 2002 % change The Sun 3,276,454 3,447,108 -4.95 Daily Mirror 1,900,155 2,031,596 -6.47 Daily Star 828,825 819,203 +1.17 Daily Record 484,894 522,388 -7.18 Daily Mail 2,299,043 2,327,732 -1.23 Daily Express 851,199 916,055 -7.08 Daily Telegraph 888,613 923,815 -3.81 Times 594,134 619,682 -4.12 FT 425,387 440,036 -3.33 Guardian 359,273 378,516 -5.08 Independent 205,303 181,933 +12.85 Source: Audit Bureau of Circulations.
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