What happened to the traditional logic of the business cycle?
Local newspapers used to be first into a recession, and first out. This time, they were first in. But it looks like they will be last out — always assuming, of course, that they return to growth at all.
This morning’s trading statement from JP covered the period from January to early May. With lots of other media companies reporting recovery, it came at a significant moment.
The result was disappointment. Revenues declined by 7.1% YOY. Trying to put a gloss on the situation, management argued that advertising was ‘fairly stable’during Q1, but ‘a little more subdued during April”.
We were also told not to expect ‘any significant improvements in the current trend until Q3 2010″.
This carefully-worded statement posed some difficulties. Roughly two-thirds of JP’s revenue base is advertising. So if ad revenues were ‘fairly stable’during Q1, why the 7% YOY decline in overall revenues?
The answer, I suspect, is that ad revenues in the early part of this year only look ‘fairly stable’if you look at them sequentially, in the wake of Q409.
In other words, ad revenues bumped along the bottom during Q1 — at best. In April, things got worse. This is not a pretty picture.
The suggestion of a return to growth in the autumn isn’t foolish, but it is brave.
The supporting arguments include a resurgence of digital revenues at JP, up by 13% YOY.
Note, too, yesterday’s news of the biggest rise on manufacturing output since 2002, which suggests that the real economy — beyond London’s service sector bubble — is shrugging off recession. This is good news for those parts of Britain where people still make things and read local newspapers.
By autumn, however, a Con-Lib government will be scything down public sector budgets and jobs. In London, where I live, local councillors are anticipating an immediate order to reduce their budgets by 15%-20%. The effect on those parts of the country that have grown dependent on public subsidy will be grim.
Small businesses generate the bulk of local newspapers’ revenue base. They also underpin the economy’s ability to generate new jobs. But they remain constrained by the banks.
During early 2010, demand for credit skyrocketed among sub-£1m-turnover businesses. In the early stages of a recovery, you’d expect this. Small businesses need credit to cope with new contracts, or to expand production.
In response, the banks actually restricted lending. Even when money is dirt cheap, the banks aren’t lending, because their balance sheets remain an unholy mess.
The question of whether recovery is sufficiently well-established for the economy to withstand big public spending cuts lay at the heart of the election. It turns out to be a crucial question for local newspapers.
Will we witness an autumnal happy ending? Tomorrow, when Trinity Mirror produces its own trading update, we’ll get Sly Bailey’s opinion.