BUSINESS/ECONOMY

Fleet Street’s shake-out

ROSS LAVER October 19 1987
BUSINESS/ECONOMY

Fleet Street’s shake-out

ROSS LAVER October 19 1987

Fleet Street’s shake-out

BUSINESS/ECONOMY

As the editor of the Daily Telegraph, Britain’s most widely read serious newspaper, Max Hastings has reason to be wary of new competition. When a rival daily, The Independent, appeared on the newsstands last year Hastings conveyed his congratulations to the staff of the new paper with a bottle of champagne, along with a wreath and the message: “Good luck. Now we are going to bury you.” While Hastings’ greeting was not meanspirited—many of The Independent's employees were former Telegraph workers— the success of the new paper is no joke. Far from being buried, The Independent has carved out a comfortable niche for itself in one of the world’s most fiercely competitive newspaper markets. “Its creation was a fine achievement,” Hastings acknowledged last week on his new rival’s first anniversary. He added, “At a time when there has been a lot of stagnation in the industry, The Independent has set a very high standard of professionalism.”

The year-old paper is expected to start earning a profit next year. And its success is one of many forces that are now shaking up the once-cozy world of Britain’s press barons. In the past 18 months five other major new daily and Sunday papers have rolled off the presses. Of those, two have run into serious financial difficulty and a third has already gone out of business. Meanwhile, at least three well-known investors—including Australian-born tycoon Rupert Murdoch, who already controls a third of Britain’s newspaper market—are considering takeover bids for all or part of Pearson PLC, a London-based conglomerate that owns the highly respected Financial Times. Said Anthony Pennie, a publishing analyst with the London brokerage firm of James Capel & Co.: “The last couple of years have been a period of great upheaval in the British newspaper industry, and it’s not over yet.”

In that atmosphere, the survival of The Independent (circulation: 325,840) was a major achievement. For one thing, the new paper had to compete for readers with nine existing national dailies, ranging from the serious papers such as The Times, the Financial Times and The Guardian to sensationalist tabloids, including The Sun, the Daily Mirror and The Star.

In addition, the paper appeared at a

time when many British investors had serious doubts about the feasibility of starting a new national newspaper. Only seven months earlier, flamboyant British entrepreneur Eddie Shah had tried to revolutionize the industry by using computerized typesetting equipment to launch a new full-color tabloid, Today. But poor sales forced Shah to relinquish control of the paper in September, 1986, and after changing hands twice, Today is now part of Murdoch’s publishing empire, News International PLC, which also includes The Times, The Sunday Times, The Sun and the weekly News of the World.

The founders of The Independent were determined not to repeat Shah’s mistakes. The paper’s editor, Andreas Whittam Smith, 50, a former financial

editor of the Daily Telegraph, spent more than a year laying the groundwork for the new paper. Armed with extensive market surveys, he managed to talk 33 institutional investors into putting up the initial $38 million needed for the launch. Like Shah, Whittam Smith said that it was possible to challenge Britain’s established press giants, which have been forced by their unions to retain costly, outdated print-

ing methods, by taking advantage of more efficient state-of-the-art technology. That new hardware, which is widely used in North America, but was only recently introduced in Britain, allows journalists to type articles directly into computers connected to typesetting equipment. But while Shah had invested heavily in new presses, Whittam Smith decided that it would be cheaper to contract out the printing work to existing companies.

As a journalist, Whittam Smith also knew that the paper’s success depended on the abilities of its reporters and editors. In contrast to Today, where many of the staff were young and inexperienced, Whittam Smith set out to recruit some of Britain’s best-known print journalists. Said Jonathan Fenby,

44, national affairs editor of The Independent and a former Bonn bureau chief for The Economist, the respected weekly British newsmagazine: “The

launch of the paper was extremely carefully prepared. We took on journalists who were the best in their fields.”

Hiring good journalists turned out to be one of the least of Whittam Smith’s problems. The reason: morale was extremely low on Fleet Street— the term still used to describe Britain’s national press, even though most of the newspapers have moved away from their traditional address. The staff at Murdoch’s Times and Sunday Times was particularly vulnerable. Said Patricia Clough, a former domestic affairs reporter for The Times who moved to Bonn as one of The Independent’s 17 foreign correspondents: “I suppose you could say that a lot of us joined the new paper out of idealism. There was a feeling that standards elsewhere were falling and that papers like The Times were becoming too right-wing.”

Indeed, The Independent has broken with Fleet Street tradition on several fronts. For a start, the paper’s management banned employees from accepting free trips or other gifts from government agencies or private firms because that would undermine the paper’s integrity. “I suppose it has something to do with my religious background,”

Whittam Smith, the son of an Anglican minister, said last year. As well, the newspaper has declined to take part in regular off-the-record briefings for the British press by senior government officials. Critics of that practice say that the government uses the briefings to plant stories in the media without identifying itself as the source.

The Independent does not have any apparent political alignment. That in itself sets the newspaper apart from its direct competitors: The Times, the Financial Times and the Telegraph all support the governing Conservatives, while The Guardian leans toward the opposition Labour Party. Said Robert McMenemy, marketing manager for The

Independent “When we started off we knew that it was important to take an independent stance. As it happens, that was one of the things our readers say they like most about us.” Even

many senior civil servants applaud the paper’s nonaligned policy. “It’s refreshing to read a newspaper that hasn’t already made up its mind on most issues,” said one Foreign Office official who asked not to be named.

The success of The Independent contrasts with the experience not only of Today but also of the London Daily News, a left-leaning tabloid that folded in July after only five months. Founded by Robert Maxwell, a longtime Labour supporter, the paper attracted less than 100,000 readers, a third of its sales target, and it was losing an estimated $2 million a week. Another new paper, the weekly News on Sunday, is still being published but had to go into receivership less than

two months after its first issue in April.

The rest of Fleet Street’s papers are fighting to maintain their share of the market in the face of new competition. The spirit of change has been most evident at the Telegraph, which Torontobased millionaire Conrad Black acquired for $60 million in 1985. For years the tradition-bound paper suffered from a serious image problem: market research showed that young people tended to view the paper as being so dull and boring that they did not want to be seen carrying a copy. As a result, Black hired a team of new managers and editors with instructions to modernize the paper’s layout and editorial content. According to Hastings, 41, the paper has gained over 40,000 readers in the past year, reversing a 15-year decline in circulation. But he added: “It’s too early to be triumphant. It will continue to be very competitive.”

According to some industry analysts, the next British newspaper to change hands could be the Financial Times (circulation: 280,000). The paper is currently owned by Pearson, a 143-year-old family-controlled conglomerate with wide-ranging interests that include Penguin books, Royal Doulton china, Madame Tussaud’s waxworks, Lazard Brothers merchant banks, Chateau Latour vineyards and 50 per cent of The Economist. Last month Murdoch’s News International PLC disclosed that it spent $570 million to build up a 14.9-percent stake in Pearson.

Murdoch’s purchase led to rumors that the company was vulnerable to a takeover. Said Pennie: “Murdoch probably looked at the Financial Times and concluded that there was no reason it couldn’t sell a million copies a day. After all, there are a billion people in the world who read English, and the market for business publications is growing all the time.” Other observers note that Murdoch’s Hong Kong-based South China Morning Post could be used to launch an Asian edition of the Financial Times.

Murdoch himself says that he will not try to acquire Pearson for the next 12 months—unless someone else launches a takeover bid first. That may happen. At least two other potential suitors are waiting in the wings: Maxwell, who publishes the mass-circulation tabloid Daily Mirror and recently bought almost five per cent of Pearson: and Italian financier Carlo De Benedetti, who owns 4.9 per cent of Pearson. As one London-based investment banker put it, “The vultures are flying overhead.” And the battle for British newspaper readers shows no sign of ending.

-ROSS LAVER

PHILIP WINSLOW