Tuesday 25 April 2017

Irish Times roaming into uncertain territory as top executives depart

Plunging revenues, large numbers of staff and high salaries force cutbacks at the Irish Times - with two senior executives the latest departures, write Dan White and Gavin McLoughlin

The bleak external environment has fed through into the Irish Times' financial performance
The bleak external environment has fed through into the Irish Times' financial performance

Dan White and Gavin McLoughlin

Last month finance director Peter Callan and commercial sales director Vivien McKechnie left the Irish Times. The two, who are not being replaced, went as part of a cost-cutting programme aimed at reducing annual running costs at the Irish Times by €4m.

Both were well-regarded. McKechnie, a digital proponent, joined the organisation two years ago amidst much comment about online transition. Callan is seen as a bright operator who will be snapped up quickly.

While many international media companies have transitioned rapidly in the past 10 years, the pace of change in the Irish Times has been slower.

So what is going on behind the scenes at the Tara Street title? And what does the future hold for a company now looking at more cuts in the future?

What will surprise some is that the paper - as a trust - does not have to make a profit. Many observers point out that this structure has led to the brand being so slow to change.

The past five years have been turbulent for the formerly self-styled paper of record, with its average daily circulation falling by 29pc from almost 101,000 to 72,000, broadly in line with the overall market.

The paper is struggling to attract big numbers of large-scale display advertisements, perhaps because of its limited geographical footprint and largely older male readers.

Irish Times chief executive Liam Kavanagh has said he feels more than 50pc of Irish advertising now goes to Facebook and other online media platforms such as Google and YouTube, a development that has potentially serious consequences not just for newspapers but also for other traditional media outlets such as TV and radio.

He cautions against writing off print advertising altogether, saying: "For the right products print advertising works very well". For the Irish Times the challenge is now to sell "solutions" to its advertising clients.

The bleak external environment has fed through into the newspaper's financial performance. While sales from continuing operations have been broadly unchanged at just over €83m since 2013, there has been a steady erosion in operating (pre-interest) profits before exceptional items from €2.7m in 2013, €840,000 in 2014 and an operating loss of €1.14m in 2015.

The Irish Times closed its defined benefit pension scheme last year. While it has agreed to contribute €11m to the new defined contribution scheme over the next seven years, the move has removed the €46.75m hole in the old pension fund from its balance sheet.

So how does a newspaper turn a buck in the digital era? For the Irish Times it seems to be a case of if you can't beat them join them. It reintroduced a paywall in February 2015, charging users of its website.

"The paywall has gone very well. We are moving towards a more direct relationship with our readers. There has not been a month [since the re-introduction of the paywall] that digital revenues haven't increased", says Kavanagh.

The Irish Times's digital revenues are now "up around 20pc" of its total revenues, according to Kavanagh. The centrepiece of this strategy is offering customers a home delivery/online subscription bundle. The paper now has more than 48,000 such customers and hopes to have more than 50,000 by the end of the year.

But how real are digital revenues generated by the sale of attractively priced home delivery deals?

"A reasonable proportion of our digital revenues are digital only. The concept has worked very well and has transformed the way that we think of our business," says Kavanagh.

While all newspaper publishers have been hit hard by the digital revolution, the Irish Times has also had to labour under a number of unique disadvantages.

Unlike the other indigenous newspaper publishers, who also have afternoon and Sunday newspapers, it produces only one title. This means that it lacks the economies of scale that would come from being able to spread its overheads across a number of mastheads.

The Irish Times also has an unusual ownership structure by Irish standards, being owned by a charitable trust.

While this may, as the trust's advocates contend, protect its editorial independence, it also deprives the Irish Times of access to fresh capital.

However, while acknowledging that the lack of multiple titles and its ownership structure can create potential disadvantages, Kavanagh points out that the Irish Times has a number of ancillary businesses. These include property website myhome.ie and a contract printing business that prints a number of its competitors' titles.

Despite the contribution of these ancillary businesses and continuous cost-cutting, setting aside a further €1.86m for reorganisation costs in 2015, the Irish Times has been only marginally profitable over the past five years.

There will almost certainly have to be more cost-cutting at the Irish Times. There has long been a perception that it is a top-heavy, high cost organisation. A comparison with Independent News & Media (INM), the publisher of this newspaper, would seem to bear this out.

Whereas INM employs 999 people and publishes a slew of newspapers, including two Sunday newspapers, two daily newspapers and many regional titles, the Irish Times requires a staff of 444 to publish one daily newspaper and a website.

The Irish Times staff costs are also out of line with INM's. It had total staff costs €37.6m in 2015. That works out an average of €84,700 per staff member.

Staff costs at INM were €75.4m last year, an average of €75,500. However, the INM staff costs figure includes €11.2m of termination costs. Strip these out and average INM staff costs fall to €64,500, just three-quarters of those at the Irish Times.

The irony of this situation is that while the rise of digital has decimated newspaper circulation and advertising, newspaper readership (including that of the Irish Times) has never been greater - with NewsBrands recording a further 4pc increase in its readership to 427,000 in 2015. However almost 40pc of the readership of the Irish Times is now online.

"There is more interest than ever before in news. The challenge is getting people to pay for it," says Kavanagh.

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