Monday 21 August 2017

A baptism of fire

Disastrous diversification moves mean the new man at the helm may have to cut staffing levels before his feet are under the desk

Kevin O'Sullivan takes over as editor of 'The Irish Times' with the newspaper experiencing extremely difficult trading conditions. With job cuts likely to be the first item in his in-tray, he is facing a baptism of fire.

In the end the bookies got it just about right. Ever since Geraldine Kennedy announced her intention to retire as 'Irish Times' editor last March, the smart money had been on either O'Sullivan or deputy editor Paul O'Neill succeeding her. While a number of external candidates threw their hats into the ring, 'The 'Irish Times' board was always likely to choose an internal candidate.

For most journalists in this country the editorship of 'The Irish Times' is very much the top of the greasy pole. As the self-proclaimed "newspaper of record", 'The Irish Times' represents the gold-standard in Irish print media. Over the past half century it has evolved from being a minority publication with a shrinking, largely Protestant, readership into the most influential newspaper in the country.

Unfortunately 'The Irish Times' editorial pre-eminence has not always been accompanied by commercial success. Unlike other Irish media groups, 'The Irish Times' remains very much a one-man band. Despite several attempts at diversification, the company remains entirely dependent on just one title.

After a long-period of navel-gazing, 'The Irish Times' decided against launching a Sunday edition in the 1990s, preferring to concentrate on its Saturday one, now dubbed the weekend edition. This failure to launch a Sunday edition has given its rivals free rein on the day that sees the highest sales of newspapers and, because readers aren't rushing to work, is also a favourite with advertisers.

It also means that 'The Irish Times' printing plant, which cost the group more than €70m in the late 1990s, is standing idle every Saturday night.

Much more damaging than the failure to launch a Sunday edition have been the two major investments made by 'The Irish Times' during the noughties. In 2007 it acquired a 47pc stake, later increased to 62pc, in the Gazette Group, which publishes a number of local newspapers in the greater Dublin area.

Twelve months ago, in a case brought against 'The Irish Times' by Gazette Group founder and former Meath footballer Liam Hayes, the High Court was told that the Gazette Group had racked up accumulated losses of €3.3m by March 2010 and owed its printer, 'The Irish Times', €205,000.

While the Gazette Group has clearly not achieved the success that 'The Irish Times' might have hoped for when it made its investment four years ago, it pales into insignificance beside the disaster that is myhome.ie.

In July 2006, just as the overheated Irish property market was peaking, 'The Irish Times' paid an incredible €50m for property website myhome.ie. Even at the time it seemed as if the paper was paying way over the odds.

Now that Irish house prices have fallen by over 40pc from their peak 2007 levels, the price paid looks even more absurd with most analysts reckoning that 'The Irish Times' would be lucky to recover a fifth of the purchase price.

In 2008 the paper wrote off €25.5m of subsidiaries' -- mainly myhome.ie -- goodwill and a further €8.5m in 2009. While the group has yet to publish its 2010 results, most observers are expecting a further writedown of the value of myhome.ie.

Not alone did 'The Irish Times' massively overpay for myhome.ie, the acquisition hugely increased its already dangerous levels of exposure to the property market just when that market was peaking. Unlike the other quality Irish newspapers, which aim for a 50:50 split between advertising and circulation, in the good times 'The Irish Times' achieved an advertising/circulation split closer to 70:30.

Most of the paper's huge advertising revenues came from its dominance of high-end property and employment advertising. During the good times its enormous weekly property and business supplements, dripping with expensive advertising, were the envy of its competitors.

Unfortunately for 'The Irish Times', while all advertising is down due to the economic recession, property and employment advertising have been particularly badly hit.

This drop in advertising revenue has fed straight through to the paper's bottom line. In 2009 'The Irish Times' recorded an operating (pre-interest) loss of €4.6m before exceptional items, an €11m turnaround on the €6.4m operating profit before exceptional items recorded in 2008. While the paper doesn't strip out advertising revenue in its accounts, apart from revealing a cumulative 55pc decline in 2008 and 2009, some idea of the extent of the decline in money terms can be gleaned from the fact that its 2009 turnover of €92m was down €32m on the €124m achieved in 2009 and by a massive €45m on the 2007 figure of €137m.

Although circulation revenue has held up better than advertising revenue, 'The Irish Times' circulation, in common with that of all Irish newspapers, is under pressure from the economic downturn and the rise of the internet. The most recent ABC figures showed its circulation at just 102,000, down 15,000 copies a day since the first half of 2007.

While neither O'Sullivan nor Kennedy can hardly be held responsible for the paper's disastrous diversification strategy, the failure of the company to develop alternative income streams means that the core daily newspaper has been left looking extremely vulnerable following the collapse in property and employment advertising.

When 'The Irish Times' publishes its 2010 results sometime this autumn, it is almost certain to unveil further losses.

These losses have continued into 2011 and have already forced the company to cut staff wages by between 5pc and 20pc in 2010. Now the company is understood to be planning to reduce its headcount of 420 by between 20 and 30.

This means that O'Sullivan will barely have time to get his feet under the editor's desk and accept the congratulations of colleagues on his appointment before he has to break the bad news that some of them are losing their jobs.

Despite its many problems it would be wrong to characterise 'The Irish Times' as a basket case. Its readership is concentrated in the prized ABC segment of the market. This means that when the economy eventually recovers, the paper's advertising revenues will benefit disproportionately.

'The Irish Times' was also a pioneer of the internet among Irish media outlets. However, its website has been overtaken in popularity by RTE's in recent years.

With its main revenue streams likely to remain depressed for the foreseeable future and its website having been surpassed by RTE's, where does O'Sullivan take 'The Irish Times'?

While he would no doubt argue that the commercial direction of the company is the responsibility of managing director Liam Kavanagh, the fact that the company has only one title and that O'Sullivan as well as Kavanagh are directors of Irish Times Limited means that his decisions will be crucial in determining the future of the group.

With unconfirmed reports that 'The Irish Times' has sounded out potential investors it is clear that everything, including even the charitable trust that owns 'The Irish Times', is now on the table. All eyes will be on O'Sullivan as he steers the iconic newspaper through the turbulent waters that undoubtedly lie ahead.

Irish Independent

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