Contrary to popular opinion...

Ivan Fallon has a confident, contrary view on the future of newspaper economics.

To hear the chief executive of Independent News & Media's UK operations tell it, newspapers are doing just fine globally, but they should cost more to buy in Britain.

The former financial journalist now ensconced in the chief executive's suite at The Independent's docklands offices has seen fashions come and go, and takes a "hard-headed" approach to the internet.

It may be great for classified ads and reducing the costs of newspaper production, but he expects the rapid growth in online advertising to level off. Ad-supported editorial websites have yet to persuade him, never mind blogs or podcasts. Giving away online content gratis is "insane", he insists.

News doesn't break online and newspaper journalists shouldn't be distracted by the move to integrate print and online newsrooms. And another thing: Google is stealing newspaper content, and we've all been foolish to ignore it.

Newspapers growing like Topsy

At INM's AGM in Dublin last week, chairman Sir Tony O'Reilly boasted an 11.4 per cent increase in operating profits last year and launched a robust defence of traditional mass media.

"Critics and Cassandras of conventional media focus entirely on events taking place in the United States, and to a lesser degree in the English-speaking world and in Continental Europe," O'Reilly said.

It's a view forcefully echoed by Fallon.

"People say that newspapers are in decline; well, they're not. Newspaper sales and readership grew last year and will grow this year. There may be a decline in America, but America is not the whole world.

We're in Ireland, where it's still growing. We're in India where they're growing like Topsy."

India, with its rapidly growing consumer middle class, has been one target for INM's emerging-market strategy. In 2005, INM acquired a 26 per cent stake in the publisher of Dainik Jagran, one of the subcontinent's biggest Hindi-language papers. It has proved a shrewd move — INM's stake doubled in value when the company floated.

Now INM is bidding for Indian radio licences and plans are afoot for printing several thousand copies of The Independent in India for the expatriate market.

"[Newspapers] are a very solid cash-producing business — not necessarily national newspapers, but the margins on regional newspapers are still higher than almost any other industry in the country."

Indeed, on Fallon's patch, The Belfast Telegraph made £20m profit for INM while becoming the only one of Britain's 80 regional evening papers to increase sales in the second half of 2005. Flagship paper The Independent lost around £10m last year. It remains the smallest of Britain's nationals, although it has increased sales since leading the charge into the compact format and opinion-lead covers.

It's not something that excessively troubles Fallon.

"We use the London Independent very much as a cost centre for feeding the rest of our newspapers around the world with excellent copy — excellent stories which save on editorial costs in Dublin, Belfast, South Africa, Australia, New Zealand."

Let them pay more

Global ambitions aside, Fallon feels something will have to give in newspaper economics closer to home.

"We believe there is going to be a future for newspapers: people physically paying money, picking up a printed product and reading it," says Fallon.

And people should be paying more for picking up that printed product. Against the rise of freely distributed news both in print and online, Fallon argues that national newspapers will need to gain a greater a share of their revenue from the cover price.

"Advertising is not going to grow steeply — we think that the £1 newspaper is not far off," he says.

In January, The Independent raised its cover price by 5p to 70p, and was soon followed to that price by The Guardian. Fallon thinks further rises are realistic.

"The Times gives it away for 60p; The Times loses money and we lose money. The Guardian gives it away too cheaply and they lose money. The Telegraph is the only one of the four of us that makes any money, and they make a lot less than they should."

Fallon points to The Economist, which has increased sales to more than 1 million copies per week globally, despite a cover price now topping £3.

"There are people out there prepared to pay for print if it's good enough, and there always will be."

Free content is ‘insane'

The same debate about how to balance the two competing revenue streams of subscribers and advertising has been raging online. Like most newspaper publishers around the world, says Fallon, The Independent has experimented with various models for generating money online.

Today, The Independent's Portfolio pay barrier restricts access to premium content to paying users.

As online advertising spending increases, the industry appears to be shifting toward content that is free to the end-user. A survey released earlier this year by the Association of Online Publishers showed that 37 percent of its members were charging for content, down from 63 per cent last year.

Fallon doesn't intend to follow his competitors: "Their thought seems to be that if you create that critical mass you then you can have a number of options about how you monetize it. Do you go for advertising on the net? That's an increasing source of revenue, but is it enough? I don't think it is enough."

Fallon expects growth in online advertising revenues to level off.

"At some point, I think all newspaper companies are going to wake up to the fact that they have enormous editorial budgets, and to have such enormous budgets while just giving away your content for free is insane," says Fallon.

"There are three or four sites that I look at every morning that I would willingly pay for."

Stories aren't broken online

Free content is not the only online dogma that the Indy is rejecting. The Indy has resisted the newsroom integration efforts announced by The Guardian, The Times and The Daily Telegraph, and won't be following the other quality papers' efforts to post some of their material online before it appears in print.

"Newspaper journalists are not geared to instant news; it's not what they do," says Fallon.

"Most political stories happen during the day, and our journalists — like most journalists — reflect on them and write something that is more analytical than what you see on breaking news."

Readers look for analysis and nuance out of newspaper stories, Fallon insists. Newspapers don't break stories, and neither do their websites.

"I've never seen a story broken online. Before radio or TV? I have Sky News on all day," he says.

"You don't get your news out of newspapers. People haven't done for quite a few years. We've gone one stage further: we don't put news on the front page because we're trying to give them something different. Our front page has become our brand, and we think that's the direction that newspapers are going, what we call ‘viewspapers'."

But despite the "viewspaper" emphasis, the Indy isn't rushing to embrace online commentary or blogs.

"We're podcasting where we can make money out of it. How do we make money out of doing blogs?

We're pretty hard-headed. We're not dreaming with our heads in the sky saying that we must do these things because everybody else does them. Show me the reason for doing it, and I'll do it."

In fact, the Indy boss is pretty hard-headed about the economics of online journalism. The Independent website, Fallon says, is making "quite a decent profit", but will never make up for editorial costs. The real money on the web is probably not to be found in advertising-supported journalism, Fallon suspects.

"Editorial is not of huge interest to us on the internet. The big thing that interests us more than anything else is classified. Newspapers have never made money out of editorial — editorial's just a cost. You make your money out of advertising."

The focus on classified advertising is reflected in websites that INM is developing in Ireland, South Africa and New Zealand.

"We are, as a group, creating the biggest classified sites in each of our markets — other than the UK, where we are weaker."

Fallon shows little concern that the Craigslist model of free online small ads could threaten his classified ambitions.

"We have the enormous advantage of having our own newspapers to promote our sites."

But one emerging online threat INM perceives is Google. Like everyone, Fallon says, he has been astonished by the emergence of search-based advertising, which now accounts for two-thirds of online revenues.

"It's a huge threat, and all of us were foolish enough to ignore Google for some time. Basically, what it has been doing is stealing our copy and reparceling it in a different way — essentially flogging our copy to somebody else."

The principle is more important than the traffic Google might bring to a news site.

Still, Fallon is keen to dispel any suggestion that he is ignoring internet publishing; it just needs to rest on sound business principles.

"I'm not saying the internet is a complete waste of time — quite the opposite. What we are saying is show us the model, show us how we can make money out of it.

"Show us the reason to chase the fashion and invest tens of millions of pounds, which is exactly what other people are doing."

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