It is 10 years since London’s only evening newspaper was acquired by the Lebedev family whose fortune had reportedly come from energy, banking and aviation interests in Russia. You could sense the relief of the Daily Mail Group which had sustained Evening Standard losses for the previous eight years and could not believe its luck in selling a majority shareholding to Lebedev whose investment “secures the future of the paper”.
The self-confessed former KGB officer Alexander Lebedev and his UK-educated son Evgeny were so confident they could turnround a loss-making UK newspaper that, one year later, they bought another, The Independent. In each case, they paid only a nominal sum but assumed liabilities including property leases at the Daily Mail’s London headquarters. In 2014, they doubled down on news in the UK capital with the launch of the London Live television channel.
But media commentators have never known quite what to make of the Lebedev family, and now they have even more questions to ask.
This week, rival newspapers reported that the parent company of the Evening Standard and London Live made an operating loss of £13.2m in 2018. And the UK government has now announced an investigation into the Lebedev family’s sale of shareholdings in its media companies. In 2017, Lebedev had sold a 30% share in the digital-only The Independent to a Saudi businessman through a company registered in the Cayman Islands. This was followed, in December 2018, by a 30% share in the Evening Standard, apparently to the same person. The UK’s Secretary of State for Culture, Media & Sports launched the enquiry (which will be completed by 23 August this year) apparently after failing to be persuaded by Lebedev guarantees that editorial independence will not be compromised by the deals.
The announcement comes 15 months after the poisoning of Sergei Skripal helped to turn politicians, press and public against Russia, some of whose wealthiest citizens may have investments totalling £20bn in the UK. The 2003 welcome that had greeted a free-spending Russian, Roman Abramovich, as owner of the Chelsea Premier League football club and helped to turbocharge London’s residential property boom, suddenly went cold.
It has all complicated the role of the Lebedev family. Alexander’s KGB past, his home still in Moscow, an on-off relationship with President Putin, Evgeny’s intensely private life in the UK, and hundreds of millions of investment losses in media provoke inevitable curiosity. But, ahead of understanding the role of the Saudi shareholdings, Alexander and Evgeny Lebedev’s recorded investment of more than £130m can be seen to have played a key role in the development of three London-based media brands over the past decade:
The Independent: In 2010, six months after acquiring the 24-year-old, loss-making quality newspaper, Lebedev launched the i, a USA Today-style tabloid. It was the UK’s first new national daily since the 1986 launch of The Independent itself. The i was an immediate success with copy sales which peaked at 300k. Six years later, it was sold to regional publisher Johnston Press for £25m. The Independent itself went digital-only – and has become the model for other ailing dailies in the months and years ahead. Since abandoning print, The Independent, which for years racked up losses, has enjoyed a turnround. In 2018, the second year as a digital-only news publisher, it made operating profit of £3.1m from advertising-led revenue which increased 12% to £24.8m. As if to emphasise the progressive story, The Independent expanded internationally and actually increased its staffing by 50% to 169. A real success that is only just beginning.
Evening Standard: Alexander Lebedev said it was while working as a spy in his country’s London embassy and studying British newspapers, that he fell in love with the Evening Standard. Nice story. But, even as publisher of the city’s last remaining evening paper in the years before digital disruption, DMGT could not make consistent profits from the Standard. Lebedev’s radical plan for the 182-year-old newspaper was to switch it to free circulation. Magic! Within two years, it became profitable for the first time since 2001, as the doubled circulation boosted advertising revenue.
By 2015, the Evening Standard was celebrating its fourth consecutive year of profit. But it all came crashing down the following year with operating losses of £13.5m that have continued ever since. In 2018, now under the profile-building editorship of the UK’s former Finance Minister George Osborne, the Evening Standard (now with a free daily circulation of 860k) made an operating loss of £9.5m (5% less than in 2017) on revenues of £65.4m. Despite the newspaper losses, it has continued to make good profits from its weekly colour magazine and property supplement so we should expect more of them. The stability of the Evening Standard’s print advertising underlines the strength of the paper’s free distribution to commuters throughout London.
It has also been building a strong digital presence, growing UK audience by 21% and overseas readers by 48% in the year to September 2018. This helped to grow digital revenues by 29%. The overall losses in 2018 were partly attributed to the punishing rises in the cost of newsprint, which had increased by some 12-16% with more to follow in 2019. With the evening paper spending up to £15m a year on paper, these cost increases were a heavy blow. But it has suffered even more from the increased costs of “losing” The Independent and the i with which it had once shared overheads and staffing. As a result, its headcount, which had been 234 people in 2012, is now 374 with total people costs up by more than £10m. And the Evening Standard’s share of property rental costs (paid to DMGT) has increased by 80% to £3m since The Independent stopped printing.
London Live TV: In 2014, Lebedev won a new TV broadcast licence for London Live. It was one of many new TV channels launched around the UK as part of a seemingly outdated plan by then Media Minister Jeremy Hunt. The channel’s star-studded launch party attracted UK Prime Minister David Cameron, Elizabeth Hurley, Hugh Grant, Naomi Campbell and Ralph Fiennes. The heady optimism was as plentiful as the champagne. But what the Lebedev family hoped would turbocharge their London media profits has been a disaster, with losses so far of some £36m. Its targeted breakeven in 2017 has come and gone as London Live has reported pre-tax losses totalling more than £36m in the last two years. In 2018, the fourth year of broadcasting, its 2.1m monthly audience was 16% down. Although executives have blamed the UK’s BARB audience measurement system for under-estimating London viewing and, therefore, weakening its advertising sales platform, the channel has clearly failed. Evgeny Lebedev is said to be in sale and/or JV talks with the privately-owned That’s Media, which owns 20 local TV stations, including Oxford, Cambridge, Manchester, York, Swansea, Glasgow and Edinburgh.
Alexander Lebedev demonstrates a strong belief in journalism and the freedom of the media. He is a philanthropist and his famously liberal credentials include a 49% stake, with his friend, the former Soviet leader Mikhail Gorbachev, in Novaya Gazeta – a campaigning newspaper known for its courageous investigative reporting in his homeland. But it is his son who enjoys being the public face of the family media group in the UK. He is involved in the Elton John Aids Foundation, the Journalism Foundation, and ownership (with actor Ian McKellen) of a 300-year-old Thames-side pub. Some have compared the contradictions of the secretive but party-giving Evgeny Lebedev to The Great Gatsby. But everybody likes him and, despite his own periodic forays into journalism and star-struck shoulder-brushing with world leaders, he is a hands-off proprietor who has not sought to influence the views of editors. He knows his business, is tight on cost control, and is respectfully courteous but can be coolly detached. Newspaper readers people know a lot more about his father.
Once Evgeny Lebedev has off-loaded London Live (or at least cut its losses), his objective must be to put the Evening Standard back into the kind of grouping that can produce the cost sharing – and profitability – it once enjoyed. The paper’s relatively steady revenues and the rising digital audience are encouraging signs for the long-term. Given DMGT’s continuing minority shareholding, the most obvious solution would have been to merge DMGT’s Metro free morning tabloid with the Evening Standard. But, after intermittent conversations and DMGT’s own exploration of divestment options for the profitable £70m-revenue Metro, it is now being more fully integrated in the operations of the Daily Mail, especially for advertising sales. Belatedly. So, Lebedev’s ideal plan may now be dead. The alternatives might be some kind of tie-up with City AM, the 14-year-old free financial daily which has a circulation of 85k, mainly in London. The privately-owned newspaper is believed to have revenue of £10-12m and is marginally profitable. It could present content synergies with the Evening Standard’s own strong financial coverage. Other options could conceivably include some kind of merger or JV with one of Global‘s radio stations.
For now, though, the Lebedev family is preoccupied with the UK government’s enquiry, prompted by concerns about the Standard’s editorial independence, not least in the wake of the 2018 murder of dissident journalist Jamal Khashoggi. The UK government has noted that “the Evening Standard has just over 1 million unique viewers each day which equates to 25.3% of all individuals that read a newspaper in London” which justifies the enquiry.
In recent months, some commentators have pointed to a Saudi Arabian media strategy that has variously involved its collaboration in the US with Vice Media, American Media Inc, and a $200m investment last year in Penske Media, the publisher of Variety.
In some ways, it is difficult to understand why the Lebedev family would have sold the shareholdings to Saudi interests other than as part of a wider ownership plan. But, ahead of the speedy conclusion of the UK government enquiry, Lebedev deserves credit for what we do know: the family’s £130m investment in what could yet become one of the UK’s most successful news groups. Hold your breath.