Yesterday, DMGT inserted this canned quote from Lord Rothermere into the otherwise uncommunicative press release announcing the sale of the Evening Standard:
‘I would like to take this opportunity to re-iterate that DMGT remains fully committed to journalism and newspaper ownership.”
Newspaper ownership? Rothermere makes it sound like a vocation. In turn, this sounds very different from what DMGT’s finance director Peter Williams told the FT on Tuesday.
Williams, you might recall, said that selling the Standard was ‘simply a commercial transaction “. Daily Mail & General Trust, he added, was “so much more than a newspaper company”.
The Guardian picked up on this apparent conflict yesterday. But its suggestions of ‘internal tensions’and ‘cracks’at DMGT felt slightly overcooked.
Successful business people tend to be very good at holding equal and opposing ideas in their brains at the same time. Successful boardrooms generate duelling and debate: they should embody the same spirit.
At DMGT, the key balancing trick is institutionalised via the company’s dual share structure.
The Rothermere family’s super-voting shares enable its paternalism. The equity owned by outside investors encourages tight operational discipline.
There’s much that’s positive about this. Ambiguity can be a creative force. The genius of the Rothermere clan has been to manage the resulting conflict. As a result, it has avoided the fate that has befallen other dynasties that have relied on similar corporate structures.
The profits generated by DMGT’s newspapers keep this show on the road. Last year, Associated and Northcliffe between them generated £1.4bn in revenue and operating profits of £141m.
That 10% margin is acceptable to outside investors when everything else in the portfolio compensates by generating margins of between 23% and 30%. Thus the balancing act has continued.
Williams’ candour might have irritated Paul Dacre (and plenty more on the editorial floor). It may even have unsettled Lord Rothermere momentarily.
But finance directors are paid to be utilitarian. Williams knows perfectly well that his comments won’t have done DMGT any harm in the eyes of the fund managers who are paid to fret about dividends.
The boss isn’t stupid, either. Lord Rothermere might have a vocation, but he knows that his family probably couldn’t run the show without external funding.
So how should we read Rothermere’s canned comment? Not, I think, as a rebuke, but as a balancing statement (delivered from the top seat at the table).
Yesterday, I wrote:
When it comes to the Daily Mail and the Mail On Sunday, Williams tells the FT: ‘Why would we want to sell them? We think [they] are wonderful businesses and we will invest.”
But for how much longer? Two years more? Five years more? There’s a curve that plots declining profitability against potential purchase price. Get on the wrong side of line and you’ll limit your ability to invest in the future.
Lord Rothermere’s canned quote does nothing to change my mind. He used the present tense. I was thinking (mostly) about the future.
Despite the cushion of market leadership, the conflict between Rothermere’s paternalism and the City’s profit-seeking is bound to become sharper as newspaper finances deteriorate.