(S)he takes issue with my suggestion that GMG invested steadily in its regionals during the late noughties, even as revenues and profits declined.
1) Operating expenditure isn’t everything
I looked at GMG’s track record in terms of operating costs (wages, rent, print contracts etc). But newsquestslave suggests another dimension:
‘There is no ‘investment’ as in new capital raised from shareholders – as there hasn’t been anywhere in the regional press for decades.”
The argument seems to be that GMG’s regionals were just as bad as everyone else in this respect.
But newspaper companies generate lots of cash: this is one of the reasons so few have gone bust during the recession. It’s very rare indeed for them to ask shareholders for additional capital. Johnston Press did it in extreme circumstances, to pay off debts. But elsewhere, even the huge investment in new printing presses that’s taken place in recent years has been financed out of cash flow and debt.
In any event, you’d be hard-pressed to locate shareholders who would hand over new capital to finance operating expenditure (in the form of money to hire more journalists, for example).
On this basis, criticising newspaper companies for not raising more capital from shareholders is a red herring.
By looking at operating costs, I was trying to narrow the focus to factors that affect the quality of journalism on a day-to-day basis. It still think this is a valid way of looking at GMG’s track record as a regional newspaper proprietor.
2) What did GMG’s regionals spend all that money on?
Here, newsquestslave offers two arguments:
Given that things like newsprint have gone up in price, and that GMG regional has squandered cash on the Channel M disaster and other ego projects the investment/spending in the things that matter to newspaper readers, ie newspaper editorial, have declined sharply.
On ‘disaster/ego projects”: yep, it’s certainly possible that GMG chose to spend money on the wrong things. Yesterday, I suggested that this might have been the case. Of course, lots of companies do this. It’s called risk-taking. The question is whether GMG took more risks, or worse risks, for longer than its rivals.
On paper costs, Newsquestslave has a point. Buying paper accounts for 15%-20% of costs at a typical newspaper. So even though GMG maintained operational expenditure between 2004-2009, the rising cost of newsprint probably did squeeze out some investment in journalism at GMG’s regionals. Yet rising paper costs were a common factor for everyone.
That said, Newsquestslave’s points did make me backtrack on the numbers I dug out yesterday. I wanted to see whether I could reinforce my argument.
So today, I’ve got two graphs for you. The first is identical to yesterday’s effort. It shows how operating costs remained fairly static at GMG’s regionals as profit (and revenues) declined between 2004 and 2009.
The second graph shows how Trinity Mirror’s managers responded to declining profitability in a very different way. Trinity Mirror squeezed operating costs in a way that GMG simply didn’t, or couldn’t. On this basis, I stand by the suggestion I made yesterday:
GMG’s exit from the market is worrying for anyone who believes that sustained investment by large companies with deep pockets is the only thing that will save local journalism. The numbers suggest that GMG has been there, done that – and met with little or no success. The notion isn’t yet dead: but it has sustained serious damage.
As I hinted earlier, there’s one proviso. Did GMG’s regionals take too many risks? If more had been invested in ‘newspaper editorial”, and less on peripheral projects, would things have turned out differently?
Could the Manchester Evening News have remained a viable part of Guardian Media Group? Was Channel M responsible for that not happening? Some, including AndrewT23at Media Guardian, have suggested that this was the case:
As for GMG having to support a regional title, the MEN is still very capable of making money, even for a cash sieve like the Guardian, but saddling it with the basketcase TV channel that is Channel M was just too much.
If you look around the MEN newsroom at present you can see the damage caused by making a profitable regional newspaper prop up a vanity project TV station and, indeed, The (non Manchester or Northern) Guardian.
If you’ve got a view, leave a comment below, or send me a suitably anonymous email here:email@example.com
Footnote: On the Trinity Mirror graphs, you’ll note a few asterisks. For the detail-oriented among you, here’s what they mean:
* = adjusted retained businesses
** = operating costs assumption for 2009 = 2 x 1H09 operating costs (reality will be lower).