The executive, whose main previous experience has been in television as the chief commercial officer of the Endemol Group and executive vice-president and managing director of Disney-ABC-ESPN Television, doesn’t regret his year in the newspaper industry for a moment.
Indeed, he believes that if some fundamental issues are addressed, the outlook for the industry could be surprisingly optimistic over the next 20 or 30 years, despite the current difficulties at Mecom.
Over the past year, the share price of the company created by David Montgomery in 2006 has fallen from 230p to around 80p following profit warnings. All options are now formally being considered for the future, although analysts suggest the most likely outcome is the break-up of the group through trade sales of its remaining businesses in the Netherlands, Denmark and Poland.
When Toumazis accepted the role of group chief executive of Mecom a year ago in August, there were a number of factors that made him positive about the company.
“I saw this business (Mecom) as a slightly different business to a traditional newspaper business because it is subscription led with 1.2 million subscribers,” says Toumazis who is also a former managing director of Emap Advertising.
“I thought, over time, it could migrate to becoming much more a pay platform for news and information rather than just a traditional newspaper company,” he adds.
In his career, Toumazis has moved from UK to European television and radio and from magazines to film and television production and distribution and believes in the importance of executives moving from sector to sector to bring new perspectives.
“I don’t think it happens enough, particularly in the newspaper business,” says Toumazis who is complimentary about the degree of innovation in the industry.
“The newspaper industry is an industry working incredibly hard to modernise itself and although it occasionally gets accused of not listening and not trying to adapt, at Mecom there was an enormous amount of energy, innovation and creativity and a sense that there was a need for change,” says the executive who left at the end of September.
Climate of negativity
He was, however, frustrated at what he saw as the habit of journalists within newspapers “beating up” their own industry and being far more eager to write about a 10 per cent decline than a 3 per cent increase.
A bigger concern for him was the amount of content being given away free.
At the beginning of the year, Mecom announced it was moving to a pay model across all its platforms – but absolutely not a “paywall” model.
“Another of the things that frustrates me is the introduction of the phrase ‘paywall’. Why are we the only industry that seems to introduce the word ‘wall’ into our pay structure,” Toumazis notes.
“You don’t have a ‘wall’ at Tesco. You don’t have a ‘wall’ at Sky. They don’t say this is our paywall structure,” adds the former Mecom executive who believes such terminology is unnecessarily negative.
The Mecom plan was for a hybrid, or bookshop model, where readers can browse and read a limited number of stories without charge but then have to pay to have access to the rest. This way, the hope is you retain mass eyeballs at the same time as developing a new stream of revenue.
“That’s what we were testing and will be introducing in the first part of next year. That was the plan that we set up and announced and I am not assuming that the company is going to change its direction as of now,” says Toumazis.
At the moment, Mecom still has a lot of free content online and moving from a traditional to a more focused pay model was “a big step but absolutely the right step”.
One of the big challenges faced by the man who could be the last Mecom group executive – Toumazis is not being replaced – is a familiar one for the industry: where do you find the funds to modernise, including redundancies, when both circulation and advertising revenues are declining.
“A lot of the value leaves the front door every year and you continually have to write cheques to modernise and that is putting enormous pressure on companies,” Toumazis argues.
The time has come, he believes, to campaign for financial help from both the European Union and individual governments for established industries such as newspapers to help them modernise.
Why is it, he asks, that grants are often only available for new industries and start-ups rather than protecting existing jobs?
Tackling the 30%
Another concern for Toumazis is the high distribution fees – around 30 per cent - being siphoned off newspaper digital content by the major digital players such as Apple and Google.
The 30 per cent, he argues, was initially set for the very different music industry and does not make sense for newspapers where Apple and Google must be making margins of around 25 per cent on such distribution.
“That model is incredibly challenging and it worries me there doesn’t seem to be any transparency about whether it is reasonable or not. It also worries me that tech companies around the world seem to be nudging the same number,” he says.
Doomed from the start?
But leaving aside all the things that could improve the lot of the newspaper industry, how good a concept in reality was Mecom, which on paper at least, looked like a very promising development. The initial investment opportunity turned on the extent to which some of the lessons learned in the UK, post Wapping, could be transported to continental Europe.
Apart from high percentages of subscriptions, as Montgomery saw it, some at least of the Fleet Street savings could be introduced in the Netherlands and Scandinavia pushing up low profit margins there.
It has turned out to be more difficult than anticipated and not just because of the pre-recession prices paid for the acquisitions and the continuing strength of continental unions.
There are also limits to the economies of scale that can be realised in such a group.
“You can absolutely find ways to centralise finance, procurement and IT but these are intrinsically local businesses and although there aren’t many local competitors, you don’t generate the same efficiencies either within territory or out of it,” claims Toumazis.
Then there was the servicing of the debt.
The company’s initial German titles were sold in 2009 and its Edda Norwegian division went the same way in July this year for what was seen as a respectable total of $296 million – seven times underlying profits.
The decision to sell had been taken by Toumazis after the company decided it was unlikely it could ever find a way to expand its position in Norway.
Mecom announced a strategic review of the Polish businesses in January and “as part of me stepping down, we announced that we would conduct a strategic review across the portfolio and explore other options for disposal.”
As there may soon be no Mecom group, there is no job for a group chief executive and Stephen Davidson has resumed the role of executive chairman which he took on following the “planned retirement” of David Montgomery at the beginning of 2011.
It is believed that the departure of Toumazis, and the strategy of breaking up the company may have been influenced by large Mecom shareholder Aviva, the insurance company.
It was Aviva and Legal and General who, it is understood, pushed for Montgomery’s departure.
What next for Mecom?
Investors now have to choose between difficult options. They can go for the break-up. The alternative is to continue to invest in the company over two or three years and hope that the economic climate for newspapers and newspaper shares improves.
According to Canaccord analyst Simon Davies, a significant gap has now opened up between the stock market valuation of Mecom shares and the price that could be raised by disposals.
Following weak trading in recent months, Davies believes a break-up “looks the best way of extracting significant value within a reasonable timeframe.”
The trouble is regulatory problems surrounding trade sales could hit the key disposals in Denmark and the Netherlands and the businesses might not be seen as attractive targets for venture capitalists.
Despite his recent experiences, Toumazis remains convinced the outlook for newspapers in general could improve greatly if a number of significant changes could be implemented – ranging from working charging models and regulatory and governmental help to more realistic online distribution margins from the likes of Apple and Google.
“There is so much going on in the newspaper industry, it’s such a shame that so much is bring written about its demise,” says Toumazis.
“There needs to be two or three pretty significant changes and if they come, then I think the newspaper industry can face the next 20 or 30 years in a much more optimistic and much more stable way,” says the television executive who ran a newspaper group for a year.
Tom Toumazis is now looking for a new challenge and would not rule out another job in the newspaper industry to help implement some of the big changes he believes are necessary.
After all, Ashley Highfield, former director of technology at the BBC, is running Johnston Press and Mark Thompson, former director-general of the BBC is running the New York Times, subject to any possible fall-out from the Savile inquiries.
As for David Montgomery, he is saying nothing in public but as the largest individual, as opposed to institutional shareholder, he is understood to be appalled at the collapse in Mecom’s share price over the past 18 months. He is monitoring events closely, although he will be far too involved over the next few months trying to lead a major consolidation of the UK’s regional press to get directly involved with Mecom.
