Executives from three of the UK’s leading newspaper groups were rushing over the weekend to close a deal that marks the start of a long-awaited consolidation of the regional press.
Daily Mail and General Trust, Trinity Mirror and Yattendon have reached the final stage of negotiations over Local World, a new venture that would own more than 100 local titles from the Derby Telegraph to the Hertfordshire Mercury.
David Montgomery, the former chief executive of pan-European newspaper group Mecom, is leading the deal. He will become one of several prominent investors in Local World as well as its chairman.
If all goes to plan, the deal will close within weeks, said three people close to the talks. The parties are pushing to reach a final agreement before Thursday, when DMGT is due to publish its year-end results.
Mr Montgomery is firing the starting gun on a consolidation that could transform the regional newspaper industry, whose revenues have collapsed over the past decade amid circulation decline, online competition and a fragmentation of advertising spend.
“There’s been too much negativity for a long time,” says Crispin Odey, the London hedge fund manager who is set to invest in Local World along with Lord Ashcroft, the former Conservative party deputy chairman.
Local World, Mr Odey said, would seek to buy newspapers from other groups and then proceed to cut costs, centralise key functions, and revitalise the titles both in print and online.
“It’s not dissimilar from when United Distillers [the Scottish whisky group now part of Diageo] was formed in the 30s and allowed individual distillers to sell into a conglomerate that basically dealt with everything,” he said.
Unlike whisky, local newspapers face an existential threat. Profits halved over the past 10 years as print costs rose, readers migrated to the internet, and classified advertising moved to websites such as Rightmove and Auto Trader.
The UK now has 1,101 regional press titles, down 13 per cent since 2002, says the Newspaper Society, an industry body. Many daily papers have turned weekly to cut costs.
Douglas McCabe, a media analyst at Enders, doubts whether the industry can halt its decline. “There’s no silver bullet,” he says. “It’s not like there’s something really obvious that they can apply. It’s being nibbled away in every direction you look.”
Every newspaper group has been cutting costs, investing in websites, and looking for new ways to make money. But with revenues falling relentlessly and the reality that costs cannot be cut forever, there is a sense of desperation.
Local World is structured to be free from many of the burdens that have hobbled its peers. It will not own printing presses, it will not have pension liabilities, and it will not owe large debts.
Under the plans being finalised, Yattendon, a private company owned by the Iliffe family, and DMGT would both put their regional newspaper divisions into Local World in exchange for equity in the new venture.
Meanwhile, Trinity Mirror would take a stake of just under 20 per cent in the venture but is not committing any of its newspaper titles. Many expect that Trinity will end up putting some of its titles into the venture.
Johnston Press is not currently part of the negotiations. Ashley Highfield, its chief executive, says his focus was on cutting the group’s £336m of debt – which dwarfs its 2011 earnings before interest, tax, depreciation and amortisation of £83m.
But Mr Highfield adds: “I would see us as central to any consolidation that plays out in the industry.”
A big question is whether UK competition regulators have changed their stance on newspaper deals. Last year, the Kent Messenger Group withdrew a bid for several titles owned by Northcliffe, DMGT’s regional newspapers division, after the Office of Fair Trading said it would refer the deal to the Competition Commission. As a result, Northcliffe closed two of the papers concerned, leading to dozens of job losses.
“The attitude has definitely shifted quite considerably from the Kent Messenger fiasco,” says Mr Highfield. “I think people have realised that stopping consolidation is just going to present more difficulties to the regional press and people will just shut papers.”
Whatever the regulatory environment, few people believe consolidation is a sustainable solution to the challenges facing local newspapers. The real task, says a person involved in the Local World talks, will be to reinvent the way titles produce content and interact with local communities.
“We’re running out of time. That’s the reality,” the person says. “If we don’t change the model radically and quickly, other content providers and service providers will eat the rest of our lunch.”