Johnston Press – A masterclass in media mismanagement
This post was written before the UK referendum last week. Since that time UK news media stocks have fallen by around 15%, more or less in line with the FTSE 250 Index. Shares in Johnston Press have fallen by 45%; three times that level. Read on….
Recently the share price of Johnston Press [JP] slid below 30 pence, a fifth of what it was a year ago and an all-time low[i]. While their struggles are not unique among legacy news-media, how they got where they are, and their approach to recovery is a masterclass in strategic failure and mismanagement.
- Since 1988, JP determinedly bought declining businesses, milking them in order acquire more decline, with no clear strategy, other than “that local papers can beat off the challenge of the web[ii]”.
- As they stripped their acquisitions of the expertise and intellect that could have defined a road to recovery, they were lauded by the City for realising operating profits in excess of 30%, as their acquired properties, deprived of funding for growth, sank into the sand.
- More recently, while a new generation of JP leadership have addressed the liabilities of their “milk-decline” policy their digital strategy is failing – in product, in audience, and in revenue.
- As a consequence, JP have a workforce, who are disillusioned, demoralised and with little confidence in their leadership (See below).
JP’s Circulations are worst of breed. Daily circulation declines are among the worst in the UK[iii] ,almost double the industry average[iv]. According to “Hold The Front Page”[v], the bottom five regional dailies were all JP.
Compared with other regional publishers – Newsquest and what was Local World (I don’t have Trinity Mirror [TM] figures because their comScore data is regional and national) – JP’s digital engagement is very low. According to comScore, the JP’s engagement index[vi] is a third of Newsquest’s, and far less than Local World’s[vii].
In 2015, while JP’s digital advertising revenues grew by 12.4%, TM’s grew by 32%[viii]. Their comparative revenue performance is summarised in exhibit 1 below.
|Exhibit 1. Comparison of publishing revenues sources and variances – 2015-2014[ix]|
|Trinity Mirror||Johnston Press|
|£ Var (M)||% Var||£ Var (M)||% Var|
|Digital % print||32%||16%|
Any future depends on the relative level of digital growth to print decline, shown in bold above. TM’s digital growth is now 32% of its print decline, whereas JP’s is only half that.
Elsewhere in TM’s P&L, over half their lost revenue was due to strategically-irrelevant contract printing[x].
What do these trends say about the future?
In summary JP’s variances in print decline and digital growth have both been roughly half of those of TM for several years.
It has to be assumed that the rate of print revenues will decline at an ever increasing rate[xi], and that despite the rejuvenation caused by mobile and video, even with technical changes in ad trading, digital growth will gradually slow.
Put all this together and the relative forecasts for JP and TM look like those shown in the charts below (Assumptions are in the endnotes[xii]).
Impact on valuation
So it’s little wonder then that the year-on-year decline in JP’s share price has been over three times that of Trinity Mirror, or indeed any other comparable stock. Of the five stocks measured:
- Gannett (NYSE – UK Subsidiary Newsquest) is 10% up.
- TM, DMGT, and Independent News and Media are showing year on year declines of around 20%.
- JP are showing a decline in share price of nearly 80%
This is not just a reflection of market performance, but also of management performance.
Trinity Mirror have sufficient legacy control and innovation to flourish beyond their point of inflection[xiii]. Their share price does not reflect their good work, the analysts ratings reflect this. In contrast, I reckon JP will rapidly be unable to pay their wages never mind their other liabilities.
Exhibit 2. Comparison of revenue forecasts between Johnston Press and Trinity Mirror
Exhibit 3. Google indexed of peer share prices (pre Brexit)[xiv]
TNI: Trinity Mirrror, GCI: Gannett, JPR: Johnston Press, INM: Independent News and Media DMGT: Daily Mail General Trust
In the city, regular, reliable communication is everything. JP certainly can’t be questioned on regularity. A search of leading trade journals, and quality press, shows that, relative to his three peers at TM, Newsquest and Archant, JP CEO, Ashley Highfield has enjoyed 64% of all the coverage[xv]. One of Ashley’s managers at a previous employer reminded me: “He can be keen on Ashley but he is actually a good guy and likes being in charge.”
Though Ashley’s enthusiasm for “being noticed” is renowned, the quality and veracity of his communication, must be questioned.
In an interview in July 2014, when JP was valued at £200 Million, Ashley told the respected financial journalist Ray Snoddy: “The thing to concentrate on is not the share price but the market capitalisation. I would hope to get it to more than £300 million quite quickly. [xvi]”
By late October 2014, when Zenith were predicting a further 5% decline in regional media advertising and WPP -10%, Ashley told the Telegraph[xvii]:
“We’re increasingly confident in saying the worst is over for the regional press. We might not be completely out of the woods but the growth in digital audiences, and in fact the performance of print, tells us we’ll get there.”
Then in April, 2015, with the share price now worth less than 60% of the “£300 million quite quickly” assertion, Ashley received a remuneration package of £1.65 Million[xviii].
By July 2015, a year after Ashley predicted his “get-to-300-quite-quickly” position, JP’s market cap had halved.
At that time Ray Snoddy mailed me: “Johnston has successfully refinanced its debt and as a result reduced its interest charges, but so far as getting any top-line growth it remains a case of jam tomorrow. Patience in the City may be starting to run out[xix].”
Most CEOs, having presided over a 50% decline in company value, in a year, having predicted a 50% increase “quite-quickly”, might be expected to focus 100% on their business and its stakeholders.
But Ashley had other priorities in July 2015. The first was to accept a role as one of the eight advisors who would influence the BBC Charter Review. Then in October he assumed the role of Chairman of the UK industry’s trade body, the News Media Association. This coincided with the Motley Fool reporting “johnston-press-plc-plunges-over-15%-on-profit-warning”[xx].
His response was initially: “Trading conditions [are] challenging, especially in the period around the general election”. And then: “The biggest risk for publishers is that advertisers change habits. [xxi]” Both comments are illuminating, in their own way.
Then mid-November, Ashley unveiled “The UK’s First Local Native Advertising Proposition[xxii]”.
Within two days the shares had fallen 25%.
From a boast that Ashley Highfield would increase the company’s value, by half, to £300 Million “quite soon”, the reality is that today it is worth less than a tenth of that assertion.
One question that preoccupies us mere observers is why a man, whose “autobiographical”, “subjective” Wikipedia[xxiii] entry states that he was awarded the “Digital Innovator Award” by The Sunday Times, and named the “most influential individual in technology” by, Silicon.Com, is now heading a media business which seems to be underperforming against any peer benchmark, and in particular one with particularly low digital credentials.
Exhibit 4. Ashley Highfield’s Wikipedia entry
Having built a reputation as a “digital guru”[xxiv], Ashley’s JP regional websites can only be described as woeful. Not only is their advertising so intrusive, that it makes the content unreadable, but the centralised templating is un-navigable. Little wonder JP sites’ pages-read and reading-time are far below the industry norm[xxv].
Here is an example from the Edinburgh Evening News – First the your first view of the home page.
Exhibit 5a Edinburgh Evening News Home Page (Opening screen)
And here the final, fifth scroll of the home page.
Exhibit 5b. Edinburgh Evening News Home Page -final scroll
I challenge any visitor to navigate this cognitive assault, never mind find a story, or – golly gosh – click on an ad (where-ever they are above).
Meanwhile: “… the transformational acquisition for Johnston Press and an important step towards delivering our long-term strategy” led to the the launch of the iNews website[xxvi]. This turns out to be no more than a WordPress platform, with little, if anything to differentiate it from a far superior battlefield of old and new competitors.
Just have a look at the home page: rendered at 100%. One picture, and two advertisements (today, one of them headlines: “TV advertising has never been easier” – you couldn’t make it up!)
Ashley’s latest “plan” is to integrate the “i” with The Scotsman and JP’s other regional “Uber titles[xxvii]: Yorkshire Post, Yorkshire Evening Post, Edinburgh Evening News, Portsmouth News, Lancashire Evening Post, Sheffield Star and Belfast NewsLetter.
While much has been made of “I” editorial staff moving across to JP and allegedly 30 new recruits, nothing has been said about resources required in advertising sales.
I was instrumental in setting up a national sales house for TRN. I’ve advised a range of major publishers, across the world, with national and local news properties, on the complexities of packing a range of disparate titles.
Personally, I believe that far from being “transformational”, the evident strategy for integrating the ”I”, with the rest of JP’s portfolio hasn’t a fart’s chance in a thunderstorm. A quick look at the comments around the “I” announcement in Hold the Front Page[xxviii], suggests I am not alone.
It was the American comedian, Fred Allen who once quipped: “To a newspaper man, a human being is an item with skin wrapped around it”.
At JP, where a journalist is simply an expendable commodity, it is not surprising that staff morale is the lowest in the industry.
With editorial staffing having halved in the last ten years, with other staffing areas reduced by two-thirds, little wonder staff are struggling to get out a decent product.
|Exhibit 6. Staff numbers 2005-2015[xxix]|
|Editorial and photographic||2122||974|
|Sales and distribution||3412||1359|
As part of BBC Charter Renewal Process[xxx], in which Ashley is a key player, a plan has been agreed that the BBC will pay £8 million to the regional publishing groups, in order to fund 150 journalists “in an attempt to fill the local democracy gap in the UK”[xxxi].
One proposal is that the resulting resources are put in the hands of the Press Association, who would then provide this to member publishers.
Given that the project’s leading protagonist presides over a company whose 20% profit has largely been retained by halving its staff, I find it hard to believe that headcounts are suddenly going to rise.
But while staff reductions have significantly reduced costs, at the expense of operational capability, flexibility and skill, the company has, to a large extent, survived through a string of life-saving, if strategically questionable, financial conjuring tricks.
This brings into light the role and influence of Chairman Ian Russell, an accountant, whose previous roles, as Chief Executive of Scottish Power[xxxii] and Chairman of disabled employer, Remploy, were, to say the least, controversial[xxxiii].
Most recently, and largely unreported, JP’s most recent financial report shows that the staff pension deficit has been reduced from £90Million to £27Million, by utilising a “controversial” actuarial re-evaluation of risk. To quote pensions expert, Alan Collins, “The liability is still exactly the same, in the sense of it will depend on how long the members actually live rather than what assumption you make about it.[xxxiv]”
All this goes back to Ray Snoddy’s comments about jam tomorrow. Ian Russell, and finance director David King (who is credited with having turned around the Time Out Group[xxxv]) have tackled the legacy of debt they inherited. But the cash released into the balance sheet has been used to acquire the “I”, rather than address the company’s core strategic and managerial issues.
JP remains a strategy free zone, enjoying little confidence among readers, advertisers, shareholders and, critically employees.
Alongside all the symptoms of a failing business and the evidence of misguided communication, one vital test is of the attitudes of the staff. For this I turned to Glassdoor[xxxvi]. Below is a summary of the headline data for the four leading regional groups:
|Exhibit 7. Glassdoor benchmarks of staff attitudes|
to a friend
|CEO Approval||Positive Business Outlook|
This beggars two questions:
- For which company would you want to work?
- In which company would you want to invest or disinvest
Perhaps the biggest clue as to the company’s woes lies in another of Ashley’s statements: “Morale has suffered…. Journalists understand what the company is up against”[xxxvii]
You need look no further than a comparison of Glassdoor’s comparisons between JP and TM, to understand “what the company is up against” :
Exhibit 5: Summary charts of staff attitudes at TM JP
Glimmer of hope
There is however one great asset in JP. A white knight, hidden within the JP board.
Kjell Aamot[xxxviii], is a non-executive director of JP. He is an iconic legend among leaders in the global newspaper industry, having been the man who engineered the extra-ordinary, Norwegian/now-global media company Schibsted. His credentials are outstanding:
He is an ex-Finance Director, so is well equipped to understand the complexities of JP’s financial challenges
He persuaded a family trust to go to the market, to raise funds to expand and diversify. He knows why Schibsted succeeded in creating a global business, while Johnston chose to milk on sand.
His strategy to protect classified revenues has not only served the company well in Scandanavia, but has been migrated to markets worldwide.
Kjell is a digital visionary who argued that his company must move to digital first, long before anyone else had land-grabbed the expression.
He is inspiring. His staff loved him. I’ve been there. I’ve seen the way he deals with people.
And he has trust. I’d invest in him tomorrow. As would any number of senior players who understand media.
If I were a leading shareholder in JP, I’d invite Kjell out for lunch, and simply ask: “What the hell do we do now?”
Footnotes and references.
[i] This takes into account the share price adjustments following their financial restructure Yahoo Finances: https://uk.finance.yahoo.com/q/hp?s=JPR.L&b=1&a=06&c=2011&e=8&d=05&f=2016&g=d
[ii] Ray Snoddy extra-ordinary interview Tim Bowdler,2006. http://www.independent.co.uk/news/media/tim-bowdler-meet-the-real-king-of-the-regional-press-industry-412709.html
[iii] World Press Trends WAN/IFRA
[iv] Source: ABC. Jul-Dec 2015
[vi] Engagement Index is defined as the frequency of visits x pages visited x time per page.
[vii] Source comScore MMX. I don’t have Trinity Mirror Regionals data because comScore’s are a mix of regional and national
[ix] Source: 2015 Company reports
[x] Trinity Mirror Annual Report
[xii] Forecast assumptions for both TM and JP: are that for print rate of decline by the current percentage worsening by 0.5% a year. Digital growth rates will continue at current levels slowing by 1% a year.
[xiii] Point of inflection: The point where digital revenue growth/profitability (Net contribution) is great than the losses in print/analogue.
[xv] Google Analysis of Hold The Front Page, Press Gazette and JournalimUK.
[xvii] ZO, Group M, Telegraph article.
[xxi] The Guardian 14 July 2015 http://www.theguardian.com/media/2015/jul/14/johnston-press-profit-warning-advertisers-cut-spending
[xxiii] https://en.wikipedia.org/wiki/Ashley_Highfield Note that the entry warns: “This article has multiple issues…. This article is an autobiography or has been extensively edited by the subject or by someone connected to the subject. This article contains wording that promotes the subject in a subjective manner without imparting real information.
[xxv] comScore MMX
[xxix][xxix][xxix] JP Company Report
[xxxii] Ian Russell’s appointment. http://www.heraldscotland.com/news/12381104.Ian_Russell_to_take_over_as_chairman_of_Johnston_Press/
[xxxiv] Pensionsexpert.com. Alan Collins, Spence and Partners 4 April, 2016 http://www.pensions-expert.com/DB-Derisking/Johnston-Press-longevity-study-cuts-deficit-by-53m
[xxxvi] Glassdoor is an online recruitment service that holds over 8 million staff reviews of the companies that the work(ed) for. https://www.glassdoor.co.uk/Reviews/Johnston-Press-Reviews-E10296.htm