The Community Media Company?

What is the future for the Johnston Press Group, the UK’s second biggest regional newspaper publisher and the pace-setter for the regional industry?

So far, the strategy of the business has been straightforward and very successful – one of rapid expansion through acquisition, employing a much respected ability to integrate new acquisitions, and with an aggressive pursuit of the economies of scale. The spectacular result has been eleven years of uninterrupted profits growth (a record achieved by only ten other quoted UK companies) and a stonking profit margin of 35%. Even in a difficult advertising market – particularly for jobs classifieds – Johnston Press delivered yet another record year in 2005.

Yet, for the last year or so, the company’s share price has been underperforming the FTSE 100 index and broker sentiment is mildly negative. This surely seems particularly perverse given the company’s outstanding and consistent profits story, and its manifest commitment to becoming a ‘community media company’ across a range of digital media platforms. Perhaps the market sees a limit to further expansion. Maybe it reflects a general reserve about traditional media businesses. As analyst Citiwire observed, "Circulations continue to decline and the advertising market is tough, but Johnston always pulls something out of the hat. For how long remains to be seen. Although the company says there is no evidence of a migration of advertising to websites, it is surely only a matter of time."

Whatever the reason, it seemed an appropriate moment to ask chief executive Tim Bowdler about the direction he is setting for the business.

Bowdler joined Johnston Press in 1994, and in that period has masterminded the group’s growth from a publisher of weekly newspapers to one with 19 daily titles, including the Yorkshire Post and the Scotsman, and a sales revenue of around £520m. In recognition of his ‘services to the newspaper industry’ Bowdler was designated CBE in this year’s Queen’s birthday honours list.

Downturn cyclical

Bowdler is upbeat about newspapers and sanguine about the tough advertising conditions, particularly the all important job classified revenues. "On the evidence available to us, we believe that this significant drop in recruitment advertising is cyclical rather than structural", he says. "It would appear to reflect government policy in terms of cutting back on local government recruitment and a general slow down in the economy rather than migration of spending to websites."

Nevertheless, Bowdler is sensitive to the opportunities of the new media world. "The forces for change are greater than at any time in our company’s history", he says, "and we are seeing major changes in the way that our local communities consume media. As a result, we are investing heavily in digital communications and are probably reaching a wider audience than ever before. Our business is to offer high quality content across a range of media platforms to local audiences. To do this we are building digital newsrooms, like that in our Preston centre, which are capable of gathering news in many formats for distribution across a range of media. Local subscribers receive texted news headlines as they break. The result is a richer news experience at local level."

"While we invest in digital, and are absolutely serious about operating in a multimedia way, we also very much believe in the future of our newspapers both for their own sake and in their role in complementing and supporting our digital businesses", says Bowdler. "We are aiming to become an integrated community media company, providing local content in the way our customers choose to access it." What Johnston Press is not doing is attempting to graft randomly-acquired digital businesses on to its organisation. "We are encouraging the 9,000 people who work in Johnston Press to embrace the digital age and to recognise the reality of the type of business we have to become." Bowdler is honest about the scale of the task – "culturally we have some way to go from being essentially a newspaper business" - but insists that shareholder value will be maximised by bringing the entire company along with him into the integrated digital age. "Key is strategy – the plan for growth that all can buy into. We must first set the direction, and then, if we wish to buy other businesses, ensure that such acquisitions fit into to the overall plan. Without the plan we will only create confusion."

Spreading the word

Bowdler, therefore, is ‘selling’ his programme - firstly to the investment community and then across the group. On June 27th 2006, he held a presentation to analysts entitled ‘Johnston Press – local e-focussed’, which described the group’s digital publishing strategy. The purpose of the event was to "demonstrate the high level of awareness that Johnston Press already has of the changing needs of consumers and advertisers in the evolving digital world, to provide a fuller understanding of the cross-media strategy that is enabling Johnston Press to build on its strong local market positions and to illustrate that a great deal has already been achieved in developing our cross-media capabilities organically."

A webcast of the event, which features Alex Green, the group’s new director of digital publishing, is available at www.johnstonpress.co.uk/videopage.aspx, and DVDs of the event were made and shown throughout the company. Green, who has previously worked at News International as director of strategy, with Broadsystem as managing director, and at Virgin Group in a business development role, joined Johnston Press last April.

Bowdler’s plan for audience seems clear and attractive – an integrated community media platform and the investment to make that vision real. But what about the revenues - where will they come from? Bowdler talks about having achieved a £10m sales turnover already from digital, most of which is contribution as the fixed costs of digital media are low. "We’ve done well from a low base", he points out, "and revenues have grown around 30% annually. But, this is just the beginning."

Competitive edge

"We have so many advantages over the ‘Pure Play’ companies (like standalone web businesses)", continues Bowdler. "To start with, we have royalty-free use of high quality content that is highly relevant to our audiences. Then we have an advertising sales force of more than 2,000 people who know their markets in depth and are supported with trusted brands."

"Then, we have a reach of at least 10 million people a week who read our titles or visit our websites (of which he has 288). The cross-promotional opportunities offered by our newspapers are enormous and give our digital platforms a tremendous advantage."

"Our newspapers can therefore direct classified traffic into our self standing classified websites, such as Jobs Today, Property Today and Motors Today." Of all the digital revenue opportunities open to Johnston Press, "recruitment advertising is one of the most promising. Competition is very fragmented and the local C2DE jobs market (under £30,000) is underpenetrated, although covering 65% of the population. This has traditionally been our market; we understand it, and we are the best placed to continue our leadership of local recruitment across our integrated media platforms."

"But, we will not just transfer old revenue models into new media", says Bowdler. "The old advertising models are being successfully applied into the new digital spaces, like classified and on-line display. But they are also being challenged by new ways of creating revenue, like ‘pay-per-click’ and ‘cost-per-acquisition’ offered by the search engines, primarily Google. We are at the beginning of a new world of sales promotion, which will transcend (but include) advertising as we have known it since newspapers began. Almost daily, we are identifying and investigating new ways by which we will serve our business customers in the future, and I do not expect the pace of change to slacken. We are determined to embrace and develop the many new opportunities to create totally new revenue streams."

Staying local

But Bowdler is equally determined to stay close to his roots – ‘Life is Local’ is the company’s slogan and his client base is local business. "It is going to get very confusing for the local business person wondering how best to promote himself", he says. "In the past, the task was simple - an advertisement in the local newspaper. Today, the local businessman is faced with a plethora of media which are often new and unproven, but nevertheless potentially important. Our opportunity is to move from being the friendly provider of advertising space to being an advisor and consultant - a partner in his business. Our task is to be the first port of call in a volatile and confused media world and to offer the best of multimedia to our local clients. Again, this is an enormous opportunity for our group."

Clearly Bowdler is on strong ground. His Scotsman title is a top ten content provider to Google, and with his digital newsrooms, like the pioneers at Preston, his ability to win new audiences with rich content seems certain. And content is king in the digital age. Says digital guru Gonca Kemal at the Crocodile Agency, "we are seeing the limitations of traditional display advertising models as applied to the web, because they are seen to be intrusive - particularly applications like ‘pop-ups’. The next stage is content derived information, with brand owners providing content-rich information. We all know that response from a well-written piece is far higher than a click-through."

Johnston Press is creating a community media business across a range of platforms. Bowdler is not applying the ‘cash cow’ philosophy of some other newspaper groups, where the maximum is squeezed from old media to buy into new. Instead, Bowdler expects organic change – to create a modern multi-media business on the back of a traditional one – by offering his 9,000 strong company the chance to join him in an exciting evolution. It is a big task and the jury may be out, but the plan is clear.