Breaking news: Revenue woes are driving a wave of deals in the print media sector
After the closure of the Independent, the failed launch of Trinity Mirror’s New Day newspaper and plummeting revenues across the industry, 2016 will likely be remembered as a messy year for the print media.
Less than a month in, and with rows brewing over press regulation, part two of the Leveson Inquiry and fake news on social media, 2017 is shaping up to be no less dramatic.
It could also be prove to be a busy year for dealmakers working in the media space. Rupert Murdoch’s latest Sky takeover attempt and rumours over an international approach for ITV are likely to hog the headlines.
But the broadcast media’s less glamorous cousin, print, is also an area to watch, largely in part thanks to revenue woes in the industry driving the need for consolidation.
Read more: Trinity Mirror's cutting dozens of jobs in a massive restructure
2017 deals
A number of deals have been tied up already this year.
Radio Times publisher Immediate Media has been acquired by Germany’s Hubert Burda for around £270m. FTSE 250-listed Ascential sold the Health Service Journal to Wilmington last week for £19m and is seeking to sell 12 more magazine titles in the first half of this year. Newspaper publisher Johnston Press is also seeking to offload more titles after completing the sale of its East Anglia stable for £17m last week.
Pearson, the troubled publisher-turned-education business, last week put its 47 per cent stake in book publisher Penguin Random House up for sale, two years after it sold the Financial Times and its share of the Economist magazine. Daily Mail publisher DMGT, meanwhile, is in the process of selling down its stake in business-to-business company Euromoney.
Elsewhere, in a mooted deal that has grabbed some attention, former News of the World editor and media executive David Montgomery is plotting a bid, alongside Trinity Mirror, for Richard Desmond’s newspaper and magazine titles, including the Daily Express, Daily Star and OK! magazine.
“I think this is a 12 to 18-month period which will catalyse a wave of consolidation in the UK print publishing sector,” Peel Hunt’s Alex DeGroote tells City PM “It’s sort of started already, but I think there’s a lot more to come.”
Troubled times
A wave of consolidation does not happen without reason: the print media industry is going through a tough time.
One of the first media deals of the year, which saw magazine publisher Future buy titles including Classic Rock and Metal Hammer for £800,000, came about as a result of the sector’s troubles. The magazines’ former publisher, Team Rock, went into administration late last year, leaving 73 employees without a job shortly before Christmas.
“I think [the level of M&A in the industry] is definitely a reflection of what’s going on structurally in the marketplace,” Future chief executive Zillah Byng-Thorne tells City PM
“And I think that when you have a period of structural decline, what happens is there is naturally a re-consolidation.”
She adds: “I think there will be more deals this year.”
Ian Whittaker, a media analyst at Liberum, adds: “There are revenue pressures which are coming through and driving consolidation pressures.”
No signs of respite
Revenue pressures, such as shrinking advertising sales, seem to be constantly intensifying for the print media sector.
According to eMarketer, UK print advertising spend has fallen every year since 2008, when it totalled £5bn, with £3.6bn spent on newspapers and £1.4bn on magazines. In 2016, print adspend total had more than halved to £2.3bn, with £1.6bn going to newspapers and £0.7bn to magazines.
Read more: Guardian newspaper losses accelerate amid industry's advertising struggles
In that time, online advertising spend has grown from £3.4bn to £9.6bn, according to eMarketer. But despite print publishers vastly improving their online offerings in that time, the general picture appears to show that digital revenue growth is not making up for print decline.
For example, Mail Online, believed to be the world’s biggest English-language newspaper, grew its revenue by 19 per cent to £93m in the year to 30 September. But this was not enough to make up for the shrinking revenues of the Daily Mail and Mail on Sunday, whose combined turnover was down five per cent to £484m (still five times greater than the online total).
Peel Hunt’s DeGroote says the print media’s advertising struggles, and subsequent revenue woes, are a “big factor” in explaining the recent M&A surge in the sector.
“Print advertising was probably down, it’s hard to generalise but, getting on for 10 per cent last year,” he says. “The problem is the year before it was probably down 10 per cent as well. So you’ve got this compounding decline in print advertising. Which is quite hard to call the bottom of.”
With revenue declines showing little sign of improvement and consolidation increasingly necessary, the print media’s loss is dealmakers’ gain.