Broadcasting Sub-committee

BSC(3)-01-09 : Paper 1 : 22 January 2009

Evidence gathering on the current state of the Welsh Newspaper Industry - National Union of Journalists

Purpose

The Broadcasting Sub-committee of the National Assembly for Wales has agreed to report on the current state of the Welsh newspaper industry. I have been invited to provide a paper for the Sub-committee’s meeting to be held on Thursday January 22 2009.

Background

I am Chair of the Cardiff and South East Wales Branch of the National Union of Journalists (NUJ) and Father of the Media Wales Chapel (office branch) of the union.

I am employed by Media Wales as Chief Reporter of the Western Mail, and have been a journalist for 32 years.

I am a graduate in English and Related Literature of the University of York and hold a postgraduate Diploma in Journalism Studies from the University of Wales.

I am a Fellow of the Royal Society of Arts.

In recent months, concern about the future of the newspaper industry in Wales and the UK as a whole has reached a point where the NUJ considers it appropriate to raise the matter formally both with the Welsh Assembly Government through the Heritage Minister Alun Ffred Jones and the sub-committee of the National Assembly, which has been considering the outlook for the broadcasting industry in Wales. We are grateful to both for agreeing to hear our concerns.

We believe the crisis is such that there is not merely a threat to many hundreds of jobs, but to an essential element of Welsh democracy. The loss of the Western Mail, for example, would be a very considerable blow to Wales. As Father of the NUJ Chapel at Media Wales (formerly Western Mail and Echo), I shall concentrate on specific  and current concerns relating to my company, a subsidiary of Trinity Mirror plc, although the other newspaper companies in Wales face similar challenges.

Media Wales publishes the Western Mail, the South Wales Echo, Wales on Sunday and the Celtic series of weekly papers circulating mainly in the South Wales Valleys.

In November 2008 the editorial department at Media Wales was faced with an announcement of the fourth round of redundancies since the end of 2003. There were seven job losses and offices at Aberdare, Ebbw Vale and Neath were shut. As a Chapel, we resolved that if any of our members were threatened with compulsory redundancy, we would ballot for industrial action. In the event, there were sufficient volunteers to go, so no ballot was held.

The announcement of the job losses and office closures was quickly followed by a letter to all staff from Trinity Mirror's chief executive, Sly Bailey, in which she revealed that the group was encountering cash flow problems arising from difficulties in making loan interest repayments to the bank and pension contributions. Consequently, said Ms Bailey, we would not receive a pay increase in 2009.

For most members of the union, and the wider workforce, this came as a considerable shock. It raised elemental fears about whether the company would survive. It seemed especially odd in a year when we had undergone major change to an integrated newsroom, with journalists working across newspaper titles and with greater emphasis on web journalism, including videos. We had also moved into a new purpose-built office in the centre of Cardiff.

The temptation was to see the crisis affecting the company simply as a manifestation of the current recession. Yet, although the difficulties have clearly been accelerated by the economic downturn, the conditions for the crisis affecting the newspaper industry have been in place for a long time. Declining circulations, unsustainably high profit expectations, falls in advertising revenues and uncertainty about how to secure sufficient volumes of future digital (web-based) revenue have combined to prompt grave concern.

Circulation

Between Jan-June 1994 and Jan-June 2008, average daily sales of the Western Mail declined from 68,590 to 37,152
Over the same period, average daily sales of the South Wales Echo declined from 82,117 to 44,624.
Over the same period, average weekly sales of Wales on Sunday declined from 65,567 to 42,763

Profit

In the 1980s, regional newspaper groups in the UK aspired to make a profit return on turnover of around 10%. Expectations have now been raised much higher.

In the 12 months to December 31 2003, Media Wales had a turnover of £54.3m and made a profit of £16.2m (29.91%)
In 2004 turnover was £55.3m and profit £19.6m(35.47%)
In 2005 turnover was £55.0m and profit £21.0m (38.21%)
In 2006 turnover was £52.1m and profit £18.9m (36.33%)
In 2007 turnover was £50.2m and profit £15.4m (30.74%)

The comparable figures for Trinity Mirror plc are as follows:
In 2003 turnover was £1.09bn and profit was £60.6m (5.53%)
In 2004 turnover was £1.14bn and profit was £207.1m (18.14%)
In 2005 turnover was £1.12bn and profit was £209.5m (18.67%)
In 2006 turnover was £1.05bn and loss was £73.1m (-6.94%)
In 2007 turnover was £971.3m and profit was £21.0m (2.16%)

Profit figures for Trinity Mirror plc are distorted in 2006 and 2007 by very large "impairment, amortisation and other non-recurring costs" amounting to £258.6m and £166.6m respectively.

So far as Media Wales is concerned, high profit levels have been maintained not by increasing revenue, but by shedding labour.

In 2003, Media Wales declared that it had 826 employees. By 2007 the number of employees was down to 553. In the course of 2008, we estimate there were at least a further 65 job losses.

A total of 1,200 job losses across Trinity Mirror occurred last year and 44 titles closed.

According to Trinity Mirror’s 2007 accounts, the total shareholder dividends paid out in the year amounted to £63.7m. The total dividends paid out in the last decade amounted to £520m.

The Future

All the indications are that newspaper circulations will continue to decline. Management has been unable to reassure us about future advertising revenue from the website. Despite the widely perceived understanding within the industry that profit margins will fall, Trinity Mirror has been unable to provide a coherent narrative to investors about the future. Instead, the board relies on cost savings to maintain profit levels as high as possible. In 2008, Ms Bailey announced cuts amounting to £20m across the group, and she has stated that a further £20m will be cut in 2009. The impact of such cuts is likely, we believe, to impair the quality of the group’s newspapers, contributing to a continuing downward spiral.  

Investors should be told that there is a future for the industry, albeit with lower profit margins. The levels of profitability achieved would still be seen as very high in almost every other industry. In the 26 weeks to August 23 2008, for example, the pre-tax profit margin of Tesco plc was 5.66%.

Yet it is clear that investors are finding it hard to have confidence in Trinity Mirror’s future. The current share price (January 14)  is 56.5p, up from a low of 25p but substantially lower than the 12-month high of 314.75p.

Trinity Mirror has gross liabilities on its pension fund of £1.5bn, and the union takes the view that it only remains open because the group could not afford to make the up-front payments that would be necessary to close it. We have read reports by City analysts that flag up the pension liabilities as a critical issue.

The future is uncertain, but unfolding rapidly. When we sought this meeting in mid-November, our concern was about the loss of seven editorial jobs and the closure of offices at  Aberdare, Ebbw Vale and Neath. Now we are worried about the very survival of the company.

On January 13, a further major announcement was made. Media Wales is merging with the Trinity Mirror NW2 (North West England/ North Wales) subsidiary to form a new North West and Wales Region of Trinity Mirror Regionals, managed from Liverpool. This new region will encompass the Daily Post and weekly titles published from Llandudno Junction. Media Wales’ managing director, Keith Dye, and finance director, Stuart Thomas, left the company with immediate effect. For the first time in their history, the Western Mail and its sister titles will therefore be managed from outside Wales.  This development follows an earlier announcement  in December 2008 that Media Wales’ advertising director and marketing director were leaving with immediate effect. What implications the new merged operation has for the future of our newspapers remains unclear. One of our difficulties as a union is that while we are recognised by the local management, Trinity Mirror executives will not meet us or enter a dialogue with us. NUJ Chapels working for the other major newspaper groups operating in Wales (Northcliffe, publishers of the South Wales Post in Swansea and its associated titles, and Newsquest, publishers of the South Wales Argus in Newport and its associated titles) find themselves in a similar position. In all three cases, crucial decisions affecting these companies are taken outside Wales.

We take the view that democracy in Wales would be gravely damaged if its newspaper industry disappeared or were severely depleted. While the National Assembly’s powers are limited, we believe it could take steps which would be of value in this uncertain climate. It could use its good offices to start a constructive dialogue with media companies in Wales and it could support measures aimed at creating statutory protection for newspaper titles. Such an opportunity presents itself as media companies lobby for cross-media ownership restrictions to be relaxed.

Recommendations

1. The National Assembly should consider establishing a media forum  to monitor structural change in the Welsh media and open a dialogue with both sides of the industry with a view to safeguarding  quality and plurality.

2. The National Assembly should make representations to the UK Government seeking assurances that any move to relax regulations relating to cross-media ownership should be accompanied by firm commitments on the part of media groups to protect newspaper titles and provide public service content.   

Martin Shipton