Media Fortune Fame & Folly

What’s next for Telegraph?

Britain’s Daily Telegraph is for sale 15 years after the Barclay brothers acquired it for £665m from the wreckage of Conrad Black’s newspaper empire.

Back in 2004, Britain’s biggest-selling broadsheet had copy sales of 860k and operating profits of £31.5m. Last year, the Telegraph Media Group made operating profit of just £3.9m. Weekday copy sales are now 284k.

In the 15 years of their ownership, the Barclay family has managed to recoup only an estimated 55% (£370m) of their 2004 purchase price.

The falling profitability may sound like just another story of a traditional news brand eclipsed by technology. But the newspaper, which moved from London’s historic Fleet Street to the city’s reclaimed docklands in 1987, is a case study for future students of corporate fortune, fame and folly.

The Daily Telegraph began as a four-page broadsheet in 1855. It has a history punctuated by curiosity and innovation. In the 1870s, it co-sponsored an exploration to the Congo which had Henry Morton Stanley greeting David Livingstone with the now famous: “Doctor Livingstone, I presume?”

In 1925, it became the first UK daily to publish a crossword puzzle which, during World War 2, led to the recruitment of code-breakers for Britain’s Bletchley Park intelligence centre. The newspaper had agreed to organise a crossword competition, after which the successful participants were recruited to the wartime intelligence services. In 1935, the paper scooped the world with the news that Germany was about to invade Poland. In 1994, it launched Europe’s first online daily, even though the internet was still in its infancy with as few as 10,000 web sites and only 600,000 British users.

Despite ownership changes, the pro-Brexit paper has been an unwavering supporter of the UK Conservative Party and Prime Minister Boris Johnson has been a longterm columnist. It has (more or less continuously) been the country’s biggest-selling “quality” newspaper with a slightly uneasy blend of solid news, right-wing political comment, and distinctively detailed reporting of the most salacious criminal cases. It also has strong business, sports and personal finance content. In the heyday of UK dailies, Its one-time 1million circulation was more than than those of The Times, The Guardian and The Independent combined.

The publishing company has sometimes seemed slightly unworldly. In the 1970s, proprietor Lord Hartwell was a remote figure whose office suite of panelled rooms – containing maps of the world as it had been in 1914 – included a turfed area known as the “Hartwell Lawn” and a white-gloved butler. The owner lost his family business when it blew £140m he didn’t have on new printing plants in London and Manchester. He was forced to sell the newspaper to Conrad Black, for a mere £30m in 1986, less than 60 years after his father had bought it.

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. Both were physically large men. But, in newspapers, Maxwell made a lot of noise in the UK and US, while Black became a real-life global proprietor in the heyday of print. By 1993 – two years after Maxwell’s death amid chaos and criminality – 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.

Black’s control of the Daily Telegraph ended in 2004 amid allegations of fraud at his parent company. He was eventually imprisoned in the US. Meanwhile, Telegraph Media Group was acquired by the identical twins David and Frederick Barclay for some 20 x EBITDA.

The trophy deal highlighted the 30-year success of the one-time candy shop-owners who had amassed a fortune through investments in hotels, shipping, brewing and retailing. By the time they bought the Daily Telegraph, they were 70 years old and had a £5bn-revenue group of companies employing 40,000 people. Variously described as “secretive” and “reclusive”, the industrious brothers have achieved media notoriety through not much more than being able to avoid publicity.

They had come to prominence in the 1990s buying London’s legendary Ritz Hotel, the ill-fated European newspaper (founded by Maxwell), and The Scotsman daily – before acquiring the Telegraph in 2004. Their deals have been much more visible than the brothers themselves who have lived and worked – away from prying eyes and journalists – in a mock gothic castle on Brecqhou, in the Channel Islands (a UK tax haven off France).

The Barclays recruited Murdoch MacLennan, a newspaper technician then in charge of the Daily Mail, to be CEO of Telegraph Media Group. His bitter-sweet 13 years can be illustrated by:

  • Strong profits. For most of the last 15 years, the Daily Telegraph has been the most profitable UK newspaper. Many years, it made a full 50% of all “Fleet Street” profits.
  • Editorial scoops. The newspaper scored some of the UK’s best investigative journalism of recent years including: the 2009 expose 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, a 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 (which is also now up for sale).

The MacLennan era ended abruptly in 2017 with the appointment of high-rated Yahoo executive Nick Hugh as CEO. The change was punctuated by the announcement of 2016 operating profits of £32.2m – which now seem OK but then represented a 38% year-on-year collapse.

The Barclays’ 15 years have seen some hugely expansive times, like when the company almost doubled its solid annual profits of c£30m by boldly outsourcing its printing and distribution to arch-rival News Corp UK in 2008. The then left-field decision was ironic in view of how an unwise investment in printing had cost a previous Telegraph owner his whole business. The outsourcing of print was a great deal and, as a result, operating profits averaged £55m throughout 2010-15 on reasonably steady revenues. But that was before £145m of redundancy and restructuring costs which ate into operating profits during that six years, as they have done in the three years since.

Surprisingly, though, Telegraph Media actually grew headcount (not reduced it), from 974 in 2009 to 1,149 in 2018 – an increase of 18%, during a decade of cuts everywhere else in traditional media. While editorial staffing has reduced from a 2015 peak of 664 to 611, “sales, admin and distribution” headcount (including tech) has increased by 14% during the last three years.

The Telegraph’s total remuneration cost in 2009 was £69.7m. It increased by 33% to £93m in 2018. Consequently, staff costs, which accounted for 20% of all revenue in 2005 – the first year of Barclay ownership – last year swallowed up no less than 34%. In fact, those staffing costs increased a whacking 15% in 2018 alone – even though, at the other end of the funnel, the company was spending £3.9m on restructuring and redundancies.

It is tempting to see the once formidable Daily Telegraph almost as a caricature of the decline of a traditional news brand. But it is still a good business, selling almost 300k copies on weekdays at a cover price of £2 and 50% more on Saturday (at £2.50). It also claims some 100k digital-only subscribers including a growing international audience. Almost two-thirds of its sales are subscriptions and it generates up to £15m of e-commerce revenue, principally from travel. Telegraph Media is head-to-head with News Corp UK which once looked as though it was running away with the UK “broadsheet” market.

But, for a news brand which once derived perhaps two-thirds of its revenue from advertising (less than half that now), the way in which the Telegraph (and others, including News Corp) have pumped out free copies has always seemed foolish. Until recently, The Telegraph even had a retail deal giving away higher-priced bottles of water free to thousands of customers every day, denying that any (or all) of these newspaper “buyers” were non-readers just saving money on their daily purchase of water. It was all about “sales” figures not cash.

In the week when Steve Goodman, the UK’s best known press advertising buyer, has set up shop to prove that print media has been over-sold by conflicted advertising networks, it is clear that all newspapers must stop padding their readership figures if they are to hold media agencies to account for doing shonky deals with clients’ money.

For the Telegraph, which has now cut virtually all its free copies and stopped giving away plastic bottles of water, the most painful statistic is its readership’s average age of 61 years; some 46% of readers are over 65. It has the oldest readers of any UK national daily.

The digital audience is younger (of course) but leads newspaper executives to assert that only print makes money (not digital) and that you, therefore, must avoid cannibalising print sales.

Arguably, the assertions are self-fulfilling. If you don’t seek to maximise the potential of digital, you may continually be able to prove there’s no money in it.

The Telegraph’s age profile may mean that the news brand has even more to gain from freeing its digital services to compete, especially for “new” younger audiences.

In the UK, where the population really might be split 50:50, for example, on Brexit, a specific political viewpoint can completely under-cut the appeal of a news brand simply because it is a take-it-or-leave-it single package. In digital, of course, it doesn’t have to be like that.

As the UK publisher which pioneered newspaper crossword puzzles, the Telegraph should surely learn the unbundling lessons of the New York Times, which now has more than 750k separate digital subscribers variously to its Crossword and Cookery services, with no sign that it even affects the sale of subscriptions to the newspaper as a whole. But even the arrival of The Athletic to cover the Premier League Football, treasured by UK newspapers, may not yet have woken the Telegraph and its peers to the risks that whole categories of their best content risk being colonised by digital-only “vertical” rivals – if they don’t get there first.

The Telegraph’s lukewarm response to what, admittedly, seems slightly disappointing UK football coverage by The Athletic has been the ultimate “no cannibalisation” hands-tied strategy: an all-sports subscription service (rather than just the football) – and it has hardly been promoted. You might not find the offer or any subscribers to it, but you can find Telegraph people saying that unbundling doesn’t work. Told you so.

There is no reward without risk, and there will be no good time to risk cannibalising traditional revenues. But, if newspapers wait until print revenues have stopped declining, theoretically in order to minimise the risk, they may be too late to save their business. It’s not just about unbundling content but also about developing new digital functionality, content, brands and audiences. That must mean:

  • Steadily reducing the costs of the core newspaper
  • Managing digital output as profit centres, separately from print
  • Building new brands for new services to appeal to new audiences

For The Telegraph, that can mean producing powerful digital “verticals” in Premier League Football, Business, Politics – and Crosswords. Although it might be difficult to say there’s nothing “wrong” with the post-digital demand for news, it is the newspaper business model that is broken not the market for journalism.

Now that the Telegraph and The Times, two fiercely competitive UK newspapers, are sharing resources on printing, distribution and (via the wider Ozone partnership) programmatic ad sales, why wouldn’t they actually share almost everything except the journalism? They could then achieve most of the benefits of “consolidation” while staying independent, competitive – and beyond the age-old restrictions on ownership. That may become the agenda for the Telegraph’s next owner. As a potential trade buyer, the Daily Mail Group could transform the Telegraph’s profitability by saving an estimated £20-30m of duplicated overheads.

The Mail could get the “consolidation” past the competition regulators but a bid by the only other possible trade buyer, News Corp UK (publisher of The Times, Sunday Times, and The Sun), would be blocked. One-time bidder Axel Springer (now the world’s most successful legacy media group and backed by KKR private equity) may be tempted again.

The Telegraph challenge might also appetize private equity firms and, of course, possible trophy buyers. These may include Richard Branson (who was interested back in 2004), Amazon’s Jeff Bezos (owner of the Washington Post), and – wildcard – Sir Len Blavatnik’s $4bn-revenue Access Industries (owner of Warner Music, Deezer, and DAZN sports streaming). Gilded British entrepreneurs Jim Ratcliffe, Tim Martin, and James Dyson may also want to get involved and so, of course, might sovereign wealth funds from the Middle East and Asia. US political terrier and sometime media owner Steve Bannon has declared an interest.

The combination of trophy buyer and a comprehensive resource-sharing deal with, say, News Corp might become irresistible. Against all the odds, Telegraph Media Group may again attract a high price, perhaps more than £250m. Maybe 20 x EBITDA again. A real case study.

Daily Telegraph