Guardian Media Group: 'Emap will help us ride downturn'

Economic downturns can be scary times for journalists. But not, it would seem, if you work for The Guardian and The Observer.

Parent company Guardian Media Group goes into the oncoming dip with £200m in a long-term investment fund and more than £100m of operating cash, thanks largely to the sale of 49.9 per cent of Autotrader publisher Trader Media Group in March 2007.

National newspapers division Guardian News and Media may have just announced losses of £24.9m – but chief executive Carolyn McCall does not seem worried.

In fact, she believes that thanks to the purchase of magazine giant Emap’s B2B business in December 2007, as part of a joint venture with Apax Partners, The Guardian is safer now than it has ever been.

And that means she is doing her job because Guardian Media Group is a plc wholly owned by the Scott Trust with the sole remit of preserving in perpetuity the journalism of The Guardian.

When asked whether Guardian journalists now have that unique perpetual protection, she says: ‘It is protected for a very, very long time.”

And while losses are up at Guardian News and Media, McCall believes it has actually been a highly successful year for the nationals division: ‘The restructuring costs and the move to Kings Place mask what a brilliant performance they’ve had – underlying profit is better by £2m.”

GNM managed a healthy increase in turnover to £261.9m from £245.7m the previous year and, when restructuring costs and the move to new premises in Kings Place are taken out of the picture, losses stood at £13.9m.

The office move is still on course, to be completed this year. It will see staff currently occupying 26 floors in five buildings around Farringdon move to just four floors at one location in a new building up the road in King’s Cross.

Another major investment this year has seen £19m go into the relaunch of website Guardian Unlimited as guardian.co.uk.

Surprisingly, given the downturn most other publishers have seen, 2007/2008 was GNM’s best year for revenue growth since 2001 and saw display advertising grow by 6.6 per cent and digital display and recruitment ads grow by 49 per cent. This was driven, said McCall, largely by a surge in public sector recruitment.

Challenges ahead

The coming year is not going to be plain sailing for GMG‘s national journalists. Editor Alan Rusbridger must achieve the transition to a 24/7 digital news service from within existing editorial resources.

But it seems likely that The Guardian’s journalists will have an easier time than those working in GMG’s regional newspapers division, whose flagship title is the Manchester Evening News.

GMG Regional Media saw a sharp drop in profits to £14.3m in the full-year results (from £19.4m) on turnover of £120.5m (down from £122.2m). The operating margin of 16 per cent is far lower than those achieved by Trader Media Group and Emap.

McCall believes the structural change happening in the regional press, with the loss of classified advertising to the web, means regional newspapers are never going to make the profits they did several years ago, and regional press owners need to have more realistic expectations.

McCall says: ‘We’ve seen structural change for three to five years now. Regional press profits are under pressure.”

But she adds: ‘The strength we have is we are able to change the business. The regional titles are not going to be able to generate as much profit as they did. The business model as was doesn’t really work any more.”

These changes have included online launches and the decision to take the Manchester Evening News part-free in a bid to keep its circulation above 150,000.

McCall says: ‘The real irony of the timing of the downturn is that before it, the regionals were in a good place.

‘The economic decline has co-incided with real structural change at a time when the regional press needed to take a breath.”

But when asked whether GMG would consider selling off its regional papers now they are not the cash cow they once were, she says: ‘They are still highly profitable.The industry is just going through this incredibly difficult transition and it’s painful.”

She says the regional division is ‘perfectly all right in our portfolio as long we set our expectations straight. The regional press will never deliver what it did five years ago – we have to recalibrate how we think about it in our portfolio”.

Wise buys

GMG bought Emap’s B2B magazines, including titles such as Nursing Times, Construction News and Broadcast, in March, and McCall believes this sector is the best place to be if you want to survive a slump.

She says the sale of Trader Media Group and the Emap buy-up helped stabilise the group by reducing the amount of turnover reliant on print from 85 per cent to 65 per cent.

She adds: ‘I see data businesses and B2B as the safest businesses to be in. If it’s required information for a sector and a community, that’s safer than a lot of consumer media in a downturn.”

Emap and Trader Media Group’s profits and turnover do not figure in the GMG total. Their profits are ring-fenced and used to pay off debt in each deal.

This means turnover for Guardian Media Group is down and operating profit, excluding those two centres, is a modest £5.1m.

As the chief executive of a company which spans regional and national newspapers, B2B magazines and radio, McCall is well-placed to judge how bad the current downturn will be for the media, and she remains confident that any slump will pass.

‘I worked through the Nineties’ downturn and through 2001. The important thing is to manage well and hold firm to things you have to do and not cut so much that you can’t emerge from it stronger.

‘We have to grow and take advantage of opportunities. In the bad times there is always opportunity.”

But while McCall appears sanguine about the downturn, she is less so about another threat to GMG’s radio, national newspaper and regional newspaper interests: the BBC.

When asked about the BBC’s latest proposals to invest £68m in a new network of 65 ultra-local websites, she says: ‘I’m a huge supporter of public service broadcasting and the BBC. But I have a problem with the amount of scope creep, which is just rampant.

‘What chance has the regional press got when they are developing websites and doing it amid structural change when the BBC can come in with £68m?”

She says far from there being market failure in the regional press, the businesses are still highly profitable.

And she points out that, while commercial radio is highly regulated, the BBC has far more leeway to network its content, cross promote and use its ‘enormous’budgets to out-spend the commercial sector on talent.

It also rankles McCall that the BBC has gone into direct competition with The Guardian by selling ads on its US-facing website.

The Guardian has five million online readers a month in the USA and big plans to ramp up its commercial and editorial operations Stateside.

Describing the BBC, McCall says: ‘They are creeping everywhere, and we don’t know where they are going to go next.”

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