DMGT 2010: A weak and narrow recovery takes shape

What’s not to like about DMGT’s final results for the year to October? A few things. Although the overall numbers suggest a welcome improvement, classified ad markets remain broken, online and in print. After the steep declines of 2008-2009, this recovery still feels very weak.

In addition, digital strategy isn’t delivering much joy. Revenues at Mail Online are growing fast, but remain vanishingly small. Meanwhile, the standalone classified sites into which DMGT has poured so much effort remain becalmed.

Associated Newspapers

Like-for-like revenues for the year to October 2010 look relatively strong, increasing by 5%, with ad revenues rising by 6% YOY. DMGT is suggesting that the combination of buoyant print display and free-to-air site growth shouldn’t be underestimated:

Underlying revenues were up 5% or £39 million with improved revenues in display advertising, digital and developing revenue streams offsetting decreases in circulation and classified advertising.

Once again, retailers were in the engine room, increasing spend by 14% YOY. Online advertising sold through the newspaper titles’ companion sites increased by 54% to £12m. (Credit for this performance is attributed squarely to Mail Online, which grew its traffic by around 70% YOY).

All well and good. But Associated is still living with the legacy of being slow to build up sales efforts at its newspaper sites. There’s no harm in ambitious talk from Martin Clarke. Yet £12m in digital revenues remains peanuts compared with the cost of underwriting Paul Dacre’s editorial vision. Much more work and investment is required.

Neither has this rising digital tide lifted all of DMGT’s digital boats. The digital classified operations formerly known as Associated Northcliffe Digital — which focus on Jobs, Property, Motors and Travel — could only manage a 1% rise in revenues, to £95m.

Northcliffe Media

Here the picture is uglier. Like-for-like revenues declined by 6%, with ad revenues down by 7%.

There are some interesting contrasts here. As we’ve seen, retail advertising grew by 14% at Associated. But at Northcliffe’s local newspapers, where retail is now the largest single ad category, it fell by 4%. The two-speed retail advertising economy persists. But for how long will retailers continue to prop up the nationals’ print editions?

It’s desperately difficult to be optimistic about classified. Last year, property ads grew by 5% at Northcliffe. With house prices teetering on the edge of a precipice, this feat may not be repeatable. Vast debts, mortgage rationing and unemployment worries will persist for much of the population.

And who among you would place bets on recruitment markets reviving? This will happen if the private sector compensates for public sector job losses between now and 2015. George Osbourne suspects that this will happen. DMGT (and the consultancy firm PwC) seems less convinced.

The City should be heartened by what’s happening to operating profits at Associated (up from 7% last year to 11% this year) and Northcliffe (up from 7% to 10%). But the mood is grimmer than you might expect: this morning, DMGT’s shares lost 4% of their value.

That’s because much of this improvement has been driven by cost-cutting (a few hundred more Northcliffe staff lost their jobs last year). This recovery itself feels anaemic, and may be more reliant upon a narrow base of advertisers than DMGT admits.

The central questions remain: What will happen to print display and online display during a second recession? And: will those classified revenues ever come back?

Like everyone else, Northcliffe is trying to reposition itself to capture what remains of the latter. This means permanently driving down the cost of advertising — and the cost of editorial (or getting rid of editorial altogether). Talking to analysts this morning, Martin Morgan, chief executive of DMGT, suggested that Northcliffe is doing all of these things, via its hyperlocal network Local People:

‘We’re going to be taking the technology platform we’ve built (for LocalPeople) and merging it with the ThisIs sites

‘So local people can concentrate on finding a garage, finding a plumber in such a way that provides a long tail of local advertisers – people who aren’t advertising in the local press, we think we can get them in.

‘News has its place but news alone is not going to produce that flow through to looking at ads. Investment is going to go heavily in to local information content.”

Local information content? It’s an awkward term for an awkward thing: the absence of journalism.

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