Rumblings in the regional press

Published in Media & Publishing | 10 minute read | Permalink

With Northcliffe up for sale and advertising revenues showing no signs of a recovery, could the future for the regional press really be Local? When Daily Mail & General Trust (DMGT) announced the sale of its regional newspaper division – Northcliffe – last week, many observers commented on the likely outcome of the sale. Speculation of who the new owners would be was rife.

My first thoughts about the new owners were that one of the usual suspects would be the likely winner; venture capitalists; a trade sale or even break up of the empire. But then I started to think local. Google Local to be precise.

Google have made no secret of the fact that they are now a ‘locally focussed global service provider’. In short, they want to get beyond your browser, onto your desktop and most tantalisingly for them – into your hands. The opportunity to buy into the regional press and therefore local eyeballs is going to be a tough fix to resist. But before understanding why Google could win the race, let’s look at who they’re up against.

The Venture Capitalists

The sale of the regional division of United News & Media to Candover in 1998 saw the creation of the fifth largest regional publisher in the UK – Regional Independent Media Group. A solid top-level management team extracted costs and invested in radio, the Internet and content and promptly sold the group onto Johnston Press in 2002 for a very tidy £200m profit.

Used to squeezing value out of a business early on the VC’s might find Northcliffe a non-starter. That’s because Northcliffe have been busy over the past 18 months pushing their ‘Aim Higher’ initiative – essentially culling their editorial departments and getting costs as low as possible – a cynical ploy maybe to bump up the purchase price?

So if the VC’s are to pop a billion or two into Northcliffe they’ll need to top it up by investing in the very thing Northcliffe have been getting rid of – editorial staff, content production and the news room.

No opportunity for a trade sale either

Well what about a trade sale I hear you ask. All very well, but that’s going to be unpalatable to Johnston Press, Newsquest and Trinity Mirror because buying Northcliffe would take them over the 25% threshold that would trigger a Competition Commission enquiry – lasting three months or more. Northcliffe want a quick sale and they’re not going to wait around while these guys get permission.

Even if they could move quickly, the trade buyers are a bad bet in any case because they’ve been following the same cost cutting exercise as Northcliffe.

Last stop break-up

A break-up of Northcliffe would get around the Competition Commission problem, but Northcliffe have already said publicly that they would rather sell the entire piece as one – great fodder for the staff at centres who have no clue about their future at this point. The truth of course is that Northcliffe would quite happily accept a joint bid that would give a 15-30% premium over the group being sold as a single unit.

Enter Google

So if the VC’s will need to invest more over a longer period of time, the current incumbents will be too slow and break-up is on the face of it a non-starter, what’s the alternative. Well that’s where Google come in.

Google are a global brand working hard to get local with its users. It’s already launched Google Local in most of its geographic locations and is getting closer to individual websites through its Google Base, Google Froogle and Google SiteMap services. Individual users have been using Google Groups for years, Google Desktop is finally making it out of Beta and GMail (now re-branded as Google Mail) is old news in the web mail space.

But all of these tools and initiatives don’t get Google any nearer the communities that exist up and down the UK that rely on their local newspaper for information and most importantly contact with their neighbours. That’s why regional newspapers is such an exciting business, it engages the community at the local level, allows feedback and comment and most importantly interaction.

All of the things Google’s existing product range lack. What’s more, Google are not a content producer, they are a content presenter. Suddenly becoming a producer is great news for them especially as they’ve got the world’s largest advertising machine at their disposal onto which they can promote their own content ahead of heavyweights such as the BBC, CNN and of course this very blog.

Google have excelled at creating the infrastructure required to support any publishing model on the web. They already regularly index this website and the millions of websites out there that produce content frequently and to a high standard. Going that one step further and producing the content themselves is a logical move.

But the key differentiator of Google from the other players above, is cash. With over $7bn of cash reserves Google is a giant compared to the incumbent regional publishers and certainly on a par with the VC’s. They can certainly make an offer to Northcliffe and be confident of getting a good result.

Not quite the right conditions

So with everything stacked in their favour could Google clean up at Northcliffe? Well maybe not. You see, Google have never run a newspaper before. And for anyone who’s had a whiff of the industry they’ll tell you that the hardest thing to achieve is change. Ad Directors are not the easiest animals to get on with and when they’re injured and haemorrhaging recruitment, property and car revenues (the three staples of any regional newspaper) they’re not going to change easily.

Just for those reasons Google might back away from just such a deal – but never say never. The M&A marketplace is busy at the moment and people ultimately do what their told – especially if their salary is attached to it. But this isn’t about paying high salaries to existing staff.

What they’ll need is a solid management team with the vision and heart (read guts) to merge both the offline and online editorial functions, work on the basis of continuing reduced ad revenues and maximise content and local news production. Anathema to anyone who works in newspapers.

One things for sure, December will be an interesting month.