(Photo of former Daily Telegraph building on Fleet Street by N Chadwick [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons)

Daily newspapers remain the most vulnerable of traditional media. The business model has been broken not so much by print as by the cost and irrelevance of the daily frequency. Newspapers can’t bring themselves to acknowledge the commoditisation of general news. In print as well as digital, freely-available news continues to dominate their output (and costs) while the prized content of columnists and comment is mostly shrouded in a single, take-it-or-leave it package. Not because readers want it that way, but because the news brands can’t afford to give them the choice. History is killing these famous news providers. Are they just too old to change?

It is 315 years since London’s Fleet Street gave birth to the world’s first daily newspaper. Within 100 years, Britain’s pioneering rail network had spawned a host of national dailies. Throughout the twentieth century, these newspapers defined political power and influence in the UK. Publishers like the Lords Beaverbook and Northcliffe, Rupert Murdoch, Conrad Black, Robert Maxwell, and Richard Desmond have variously enjoyed or profited from their ability either to influence British public opinion or scare its politicians to death. Daily newspapers have been formidable.

Even in 2017 – when the seven national dailies have aggregate circulations some 70% below their peak – television news reviews continually promote the newspapers although their real power has been diluted by the savage loss of readers and profits. The pre-digital generation of politicians and newspaper proprietors huddle together and think they are “managing” the decline.

In an era when “media” everywhere has become a much larger industry, the daily newspapers that started it all are shrinking inexorably. Many are still profitable companies with strong brands, relationships and content which could yet become powerful rocket fuel for new businesses. But such cannibalisation risks accelerating the decline. It’s no surprise that newspaper companies – with profits to defend – should find it so hard to compete with no-baggage digital competitors. The problems have been compounded by extended generations of pre-digital management. The battalions of web radicals have been subordinated to the denizens of print.

Nick Hugh

In the UK, all this changed suddenly in June when the Telegraph Media Group, publisher of the broadsheet Daily Telegraph, appointed Nick Hugh as CEO. The former European VP of Yahoo had never worked for a publishing company before joining the Telegraph as Chief Operating Officer just six months earlier, after 18 years up to his eyes in web business.

Hugh (who will speak at WAN-IFRA’s Digital Media North America, 19-20 October in New York) succeeded Murdoch MacLennan, a newspaper technician who had spent a lifetime in UK dailies across the Mirror, Express, Mail, and Telegraph groups. MacLennan had been CEO of the Telegraph – consistently one of the country’s most profitable daily newspapers – since 2004 and looked, to all the world, as if he would be going on for some years more. But he and the former Yahoo executive were never going to be a double-act. The only thing they shared was an April birthday: this year, MacLennan was 68 and Hugh 42. The abrupt succession announcement two months later signalled, perhaps, the biggest change in the long history of the Telegraph.

The newspaper, which began as a four-page broadsheet in 1855, has a history dotted with curiosity. In 1925, it became the first UK national daily to publish a crossword puzzle which, during World War 2, led to the recruitment of code-breakers for Britain’s Bletchley Park intelligence base. The newspaper had agreed to organise a crossword competition, after which the successful participants were recruited to the wartime intelligence services. More conspicuously, in 1994, the Daily Telegraph launched Europe’s first web-based daily newspaper, even though the internet was still in its infancy with as few as 10,000 web sites and 600,000 British users.

Despite a succession of ownership changes, the paper has always been an unwavering supporter of the UK Conservative Party for which it has been lampooned as the “Torygraph”. It has long been the country’s biggest-selling “quality” newspaper. The publishing company, however, has sometimes seemed slightly unworldly, something other than a business. In the 1970s, then proprietor-chairman Lord Hartwell was a remote figure who (although driving to the office in a battered mini) was attended by two butlers in his huge office. In addition to a suite of panelled rooms – containing maps of the world as it had been in 1914 – it included a turfed area known as the “Hartwell Lawn”.

The unreality came into focus when the paper blew £140m it didn’t have on new printing plants in London and Manchester. The upshot was that, in 1985, Hartwell was all but forced to sell a 14% share to Conrad Black, a Canadian who was putting together a global daily newspaper empire.

The sleepy Brit consoled himself by thinking he would remain in control of the newspaper which had been owned by his family for the previous 70 years, simply because he would retain the title of chairman. But he was said not to have understood either the detailed provisions of the new shareholder agreement – or the financial pressures bearing down on his newspaper. Within 12 months, he needed a further cash injection. It gave Black the opportunity to take control before, eventually, acquiring the rest of Hartwell’s family shares.

For adults from the 1990s, it is as easy to exaggerate the importance of the scene-stealing Robert Maxwell as it is to under-estimate Conrad Black. By 1993, Black was the global king of big city newspapers which, in addition to the UK’s Daily Telegraph, included the Sydney Morning Herald, Melbourne Age, Australian Financial Review, the Jerusalem Post, and the Financial Post and Le Soleil in Toronto.

He enjoyed his role as a newspaper proprietor especially in the UK, where he became Lord Black. He entertained lavishly and claimed his company was the world’s fastest-growing media empire, the jewels of which were the Telegraph in the UK and the Fairfax group in Australia. Biographer Nicholas Coleridge described him as “the most erudite” of newspaper proprietors “who talks in complex, elaborate paragraphs”. One typically wordy Conrad Black quote gave it all away: “Let us be completely frank, the deferences and deferments that this culture bestows on the owners of great newspapers are satisfying.” It was not to last.

The Canadian controlled the UK Daily Telegraph until 2004 when he was dismissed by his own parent company amid allegations of financial wrongdoing. He was eventually imprisoned for three years in the US. Meanwhile, the Telegraph Media Group was acquired (for a UK newspaper record £665m) by the 69-year-old British twins David and Frederick Barclay who had beaten off bids from private equity and from Richard Desmond (whose Daily Express was the Telegraph’s printing partner). Desmond had earlier scared off Germany’s Axel Springer with calculated invective about Nazis and the war.

Shy billionaires

The Telegraph acquisition highlighted the stunning 30-year success of the one-time candy shop-owning brothers who had amassed a fortune of billions through hotels, shipping and retailing. Variously described by media as “secretive” and “reclusive”, the industrious brothers have achieved some kind of media notoriety through not much more than being able to avoid publicity.

They came to prominence in the 1990s buying London’s legendary Ritz Hotel, the ill-fated European newspaper, and The Scotsman daily in quick succession a decade before splashing out on the Telegraph. Their deals have been much more visible than the brothers themselves. They live and work – away from prying eyes and journalists – in a mock gothic castle on Brecqhou, in the Channel Islands (a UK tax haven off France). In 2004, the mysterious new Telegraph owners certainly worried Brits who were unsure whether the imperious Conrad Black’s departure was a good thing or not. Aussies had no such mixed feelings about the expat proprietor who had been openly contemptuous of their country’s political and media leaders.

Murdoch MacLennan

The Barclays promptly recruited the veteran newspaper production director Murdoch MacLennan, then in charge of the Daily Mail newspaper group. One of his first actions was to extricate the company from a painful and expensive pension deficit stoush with print partner Richard Desmond – by transferring the Telegraph printing to News Corp UK. It was just the start of a wild ride.

MacLennan’s bitter-sweet 13 years as CEO of Telegraph Media Group can be characterised by:

• Strong profits. Since 2005, the Daily Telegraph has consistently been the most profitable UK newspaper, with aggregate operating profits of some £550m and margins of up to 19%. Some years, the Telegraph has made a full 50% of all “Fleet Street” profits.
• Staffing upheaval. There has been what has sometimes seemed like an annual cull of journalists. The daily newspaper has had six different editors-in-chief (or equivalent) in the past 13 years – more than in the previous 80 years. These departures have sometimes been handled in a brutal way, with even relatively junior people escorted from their desks on being made redundant. Some £100m has been spent on severance payments during the past 13 years.
• Editorial scoops. Despite the upheaval, the newspaper has scored some of the UK’s best investigative journalism of recent years with: the 2009 publication of details of the expenses of members of parliament, which led to a number of high-profile resignations and prosecutions; and alleged financial misconduct in football which led to the 2016 resignation of the England national coach.
• Accusations. In 2015, distinguished Daily Telegraph columnist Peter Oborne quit noisily after accusing his employer of suppressing editorial content that criticised a key advertiser, HSBC. After questions about whether the Telegraph’s owners would really hold back from reporting important facts “just” for a few million pounds of advertising, Oborne claimed that negative stories about HSBC were being actively discouraged following the bank’s 2012 refinancing of its £240m debt for Yodel, a loss-making Barclay-owned delivery business.

This summer’s management change at Telegraph Media took most by surprise, including MacLennan himself. He found himself “promoted” to the role of deputy chairman, meaningless in a company where the CEO reports to chairman Aidan Barclay.

A week later, the company’s awful 2016 results told the story. Operating profit was down 43% from £49.3m to £28.1m on revenues of £292.5m (9% down). Advertising revenue was 12% down. Operating profit margin was slashed from 16% to 11% which revealed the extent to which the group’s cost savings – while upsetting its 1,130 employees on a fairly regular basis – have not added up. Staffing levels last year were actually flat and payroll costs were slightly up – even though the company again spent £3.1m on redundancies. Even at the super-profligate Guardian, that’s the price of at least 30 job savings.

Even little things like the company’s exhibitions – which include the Telegraph Ski & Snowboard Show – have been under-performing. Last year, Telegraph Events made £268k of profit from a turnover of £7.8m. That margin of less than 4% was in a market where operators routinely expect to exceed 20%. But, then, it is only two years since the division ended its long run of losses.

But the company’s statutory accounts gave an unwitting clue to more fundamental problems. Alongside the financials, its filings included a neat table which showed a reassuring (but financially meaningless) leap to 90m global online users. Crucially, it also claimed that circulation of the Daily Telegraph in 2016 was 475k, less than 2% down on the previous year. That seemed to illustrate the steadiness of a newspaper whose operating profits have seldom been less than £40m for the past 10 years. The real truth is the real problem.

Free copies everywhere

The Monday-Friday editions of the £1.60 newspaper have a circulation of 441k but only 136k(30%) of these copies are ordinary sales. More than 50% are “voucher subscriptions”, priced as low as £2 for all seven days of newspapers (including the premium priced Saturday and Sunday editions). A further 16% of the weekday Telegraph circulation is distributed free (and left lying around) at airports and railway stations. UK dailies now make the bulk of their advertising revenue and profit on Saturday, selling more copies at a higher price than on weekdays. On that day, the £2 Daily Telegraph has 604k declared circulation – but only 298k (49%) are ordinary full-price copies. The Sunday, Telegraph sells just 78k copies on this basis.

The true horror of this copy sales collapse is underlined by the way that the Daily Telegraph has lost 32% of its total circulation since 2010 (when multiples and voucher subs were almost non-existent), whereas News Corp’s The Times has lost “just” 11%. Now, both newspapers are padding their figures with free and sub-price copies – but the Telegraph is doing most.

It is the performance of The Times that has helped the Barclay family appreciate the scale of the Telegraph crisis. In the years before they acquired the business, owner Conrad Black was obsessed with maintaining the Daily Telegraph’s totemic 1m daily circulation, and used all kinds of promotions to keep it there. But that was nothing compared to the methods now being used by most of the UK’s dailies to sustain figures in the vain hope of halting the drain of advertising revenue.

The Daily Telegraph’s Monday-Saturday average circulation, at 472k, is now at risk of being overtaken by The Times which has 451k on that same basis. That’s big news. But it gets worse. If you strip away the voucher subs and free copies, The Times is already out-selling the Daily Telegraph Monday-Friday (173k v. 136k) and even more so on Saturday (342k v 298k). And the Sunday Times out-sells the Sunday Telegraph by six to one – at a 25% higher price (£2.50 v £2). News Corp UK is quietly eating into its long-term rival.

The Daily Telegraph has long had an older readership than all its rivals which helps explain why – for all the talk and state-of-the-art editorial and production systems – it has been anything but a pacesetter in the search for a viable digital future. Its readers have an average age of 61 years, almost 50% are over 65 and only 25% are under 44. But the circulation figures are the ones that, finally, make sense of the atmosphere of crisis which has pervaded Telegraph Media for years, even while the company was making record profits (often twice that of News Corp UK). Now – after more than a decade of endless salami-slicing costs and promoting ho-hum digital skills – the Telegraph’s new CEO must be tough and get real.

Nick Hugh is certain to push even more strongly into e-commerce. His eye-catching prediction that its revenues would overtake Telegraph advertising revenue in 3-5 years struck a chord with his owners who know a thing or two about online retailing. The group has a 50-person travel team (including commercial editorial people, separate from The Telegraph’s journalists) which provides content, advertising, affiliate booking links and reader offers. It is now staffing up a financial e-commerce division. He knows that making this e-commerce into increasingly independent businesses will help them grow faster than the news brand ever can. He will also want to find a way to generate more profit from events, perhaps by acquiring or merging with an exhibitions competitor.

No savings

He will be trying to maximise digital revenues. Of course. But the performance of his once so-stable newspapers demands urgent attention. He will be wondering how his predecessor made such a mess of the staffing. Only seven months ago, Hugh was surprised to find that the company had achieved the impossible of wrecking its morale with seemingly continuous waves of redundancies among journalists (reduced from 500 to 380 in the past 12 years) while actually not making any savings at all – because it was busy staffing up almost everywhere else.

For all the belief that the Telegraph has been losing a lot of experienced people and replacing them with younger, cheaper alternatives, it has – incredibly – increased its total headcount by 13% over the past six years. In 2010, Telegraph Media employed 1,004 people just over half of them in ‘editorial and production’ roles. By 2016, this had increased to 1,131 people. As if to reinforce the point, the 2016 total employment costs of £81.6m were actually 17% higher than in 2009.

It is easy to conclude that the Telegraph Media Group has been living beyond its means (even though it had been throwing off good profits year after year). Moving the cover price up from 65p to £1.20 in the first six years of Barclay ownership helped. But, now at £1.60, the weekday editions will not be able to repeat the trick: the underlying decline in copy sales and advertising revenue has caught up with them. Indeed, he must fear more pressure on cover prices from an aggressive News Corp that can smell blood.

So the new CEO will have to concentrate on the core business. He may quickly conclude that the Sunday Telegraph is an expensive drain on resources and merge it into a combined Weekend Telegraph paper, on the lines of the successful broad-appeal Financial Times edition. He certainly should save on print and paper by scrapping the 68,000 free copies of the Daily Telegraph and also cut back on those voucher subs. He may beat The Guardian to a long overdue decision to abandon expensive global ambitions. He may, instead, conclude that the only way to monetise the Telegraph’s substantial digital audience outside the UK will be with a partner. He may even seek some kind of global alliance with Jeff Bezos’s Washington Post, with which the Telegraph already has reciprocal access for subscribers. Nick Hugh’s plans for fundamental change at the Telegraph Media Group seem likely to include the following strategies:

Autonomy

The creation of separate businesses to exploit core resources, separating marketing and exploitation (in print and digital) from “content production”. This would help to make the huge Telegraph ‘machine’ more manageable and identify efficiency savings. The new CEO will want to grasp the nettle of “commoditised” news, perhaps by following his recent deal to outsource copy editing to the UK’s news agency the Press Association, with one covering a whole swathe of (expensive) general news reporting. Nobody doubts that the “healthy future for quality journalism”, which Hugh foresees, depends on investment in exclusive content not general news.

New brands

The development of new brands in news, entertainment, video streaming, events, and e-commerce. Distinct from the existing online operations, we could see Telegraph ‘online TV’ channels devoted to News, Sports, Business and Politics – and new Travel and Financial services brands for e-commerce.

Partnerships

Nick Hugh has been effusive about the “game changer” deal with Apple News, under which the Telegraph is one of 4,000 media outlets which uses the app to push its content to readers. It also has the exclusive UK rights to resell advertising space. As it signed the deal last November, the Telegraph adopted a “premium” pay wall on its website, behind which is 20% of its content. Could we see even more ambitious joint ventures with complementary media brands like Huffington Post, CNN, BT Sport, and Amazon Prime/Washington Post in the production as well as marketing of news and entertainment? Will the new CEO who recently pulled out of advertising-sharing talks with his UK newspaper rivals choose instead to do a sales deal with the all-digital operators he knows best?

Ownership doubts

Then there is the question of ownership. The octogenarian Barclay twins (and son Aidan) have now managed the Telegraph Media Group for 13 years, during which they have nowhere near recouped the £665m they paid for it. There has been UK speculation about their continued ownership in increasingly challenging times. But the management change will give them more options – providing the new CEO can stabilise profits. Joint ventures and strategic alliances with other media groups (especially outside the UK) might help accelerate digital progress without the need for substantial new investment.

Alongside all that, there is the need to recognise that journalism and journalists are at the heart of a news brand. Nick Hugh will be treading the crackly line between cutting costs and, somehow, restoring morale and trust in a shaky but still substantial UK newspaper. He is a strong strategist and communicator. But the man who has spent his managerial career in digital advertising is now facing one of traditional media’s biggest challenges. That’s why we’re all watching.

Colin Morrison is a director and consultant of digital, media, and information companies, principally in the UK, Europe, and AsiaPacific.

He was previously CEO of international media and digital companies for Reed Elsevier, EMAP, Australian Consolidated Press, Axel Springer, Future, and Hearst. He has been widely involved in media partnerships with organisations including the BBC, Hearst, Springer, Dennis, Sony, Microsoft, Washington Post, Press Association, and Hachette. His award-winning Flashes & Flames blog was honoured in the US Folio:100 as “an insightful and entertaining mind in a wobbly industry.”

This post was republished with permission from his blog, Flashes & Flames. His views are his own and do not necessarily reflect the opinion of WAN-IFRA.