Let the good times roll

DOOMSAYERS have all but written off the regional newspaper market in the UK. Declining circulation, increased competition from local radio and the inexorable growth of on-line services and cable television are perceived by many media analysts as sounding the industry's death knell.

The only answers are to "manage decline" - reaping the cash-flow benefits for as long as possible before accepting inevitable defeat - or to expand into radio, cable and multimedia.

So how to explain the optimism of so many newspaper executives? Jim Brown, chief executive of Reed Regional Newspapers, says: "This is a very good business indeed, and it has an excellent future." At Midland Independent Newspapers, Chris Oakley, chief executive, is equally ebullient. "We believe there are strong profits to be made within the next five years," he says.

There could be no firmer indication of confidence than Trinity International's decision to spend a whopping pounds 327.5m last week for the non-Scottish titles of Thomson Regional Newspapers, a move that catapulted the aggressive, publicly quoted holding company into pole position in the UK regional market. So who is right, Thomson or Trinity? The answer may be: both are.

Thomson has many other fish to fry, not least its huge UK travel business. As one industry executive puts it: "Thomson is a big international company, and regional newspapers are a very small part of what they do. They must have taken the view that the use of management time was not justified."

Trinity, by contrast, specialises in regional newspapers. It had turnover in 1994 of pounds 164.5m, a figure set to double with the acquisition of the Thomson titles. Its chief executive, Philip Graf, says he intends to ensure that management of the newspapers remains in the local market. "It is the links to the local community that are the biggest strength of regional newspapers," he says. The holding company will be responsible for central operations - for instance, the purchase of newsprint and expansion into "new media", such as links to cable operators. Mr Graf is not alone in believing there are good pickings still to be had in the UK market. Emap, the newspaper, magazine and radio holding company, has been buying new titles, most recently snapping up the Herald & Post newspapers in Bedfordshire, Buckinghamshire and Herefordshire, also from Thomson.

Mr Oakley has also been a buyer, not only of newspapers, but of an exhibitions and conferences company. The Daily Mail last year spent a seemingly exorbitant pounds 93m to buy the Nottingham Evening Post and other titles from the family- owned T Bailey Forman.

All these companies have in common a faith in the attachment readers feel to their local titles. Despite a 25 per cent decline in circulation figures for morning, evening and weekly regional papers since 1981, from 16.7 million to 12.3 million, the vast majority of adult Britons read a local newspaper. Many of these will at least look at the adverts in free papers, which have seen their circulation double to 33 million since 1981.

All told, the industry had a combined annual turnover of pounds 2.4bn in 1994, fuelled by buoyant local advertising. Profits have been relatively firm in the past 18 months in marked contrast to the poor performance of the sector through the recession.

The national circulation price war and sharply higher newsprint prices have taken their toll, particuarly in larger centres such as Liverpool and Birmingham. But many regional publishers have managed to cut costs, redesign their papers to use less newsprint, and even post slight circulation gains, despite the overall downward trend. Many of the bigger companies have even started to spend money again on improving production and distribution, in part to ward off the threat from radio and free newspapers eager to poach business.

It is the battle to retain advertisers that has driven aggressive investments in new printing presses, better editorial teams and more sophisticated advertiser services, such as televised classifieds on local cable.

Portsmouth & Sunderland, for example, last year spent pounds 13m on new presses to improve colour reproduction and to allow for more flexible print runs.

Editorial product is also targeted. Jim Brown, the chief executive of Reed Regional Newspapers, part of the giant Anglo-Dutch media conglomerate Reed-Elsevier, meets with all his editors at least once every seven weeks to discuss the contents of each title, eliciting criticisms and complaints. "Editorial product must drive the business," Mr Brown says.

The approach has led to obvious improvements in the regional press. There is less "filler" and more locally produced content. Moreover, the better newspapers are being produced at a lower cost, following the introduction of new technology and consequent staff cuts.

Despite their reputation of holding a "franchise monopoly" in their newspaper markets, regional newspaper executives insist there are real challenges ahead, and that they cannot afford to be complacent about their share of local advertising. A bold move by the classified advertising newspaper Loot to establish regional versions around the UK has already shaken up some local markets, notably Birmingham, and radio and cable television will continue to make inroads.

Commercial radio is still a very young business in the UK, and is likely to grow at a rapid rate in the next five years. Cable, meanwhile, has got off to a slow start, dogged by low penetration levels and bad marketing. But the industry added its millionth customer this weekend, according to the Cable Communications Association, and is set to grow sharply between now and 2000. "We ignore these other formats at our peril," Mr Graf says.

That is one reason why Trinity, Midland and other publishers are exploring joint ventures with local radio stations and investigating new ways of delivering their editorial content to customers: over the Internet, for example, or over the phone. Reed has set up an audiotext service that allows readers to get information at the cost of a local phone call. Midland is offering classified adverts on cable in Milton Keynes, in league with British Telecom.

Meanwhile, Portsmouth & Sunderland's chief executive, Charles Brims, has held talks with the cable company Nynex CableComms about working together to jointly supply local programming. Several local publishers have also held talks with Mirror Group, which is attempting to stitch together a network of local cable channels on the back of its Live TV feed from London. It has already reached an agreement with the Birmingham Post to launch Birmingham Live later this year.

The attractions of joint ventures with cable operators are obvious, the executives say. "We already have the journalists out getting the news," Mr Brims says. "We would like to be able to provide our content through cable and then, perhaps later, on-line."

Mr Oakley shares the view that new media will become increasingly important. He believes that in 10 years' time, 40 per cent of his profits will come from non-print operations.

Current regulations make it difficult for newspaper publishers to expand into radio. That is likely to change, at least for national publishers, if the Government follows through on its intended reform of media cross- ownership rules. To the dismay of many regional publishers, however, the envisaged reforms will limit the capacity of local newspapers to buy into same-market local radio stations. The industry is expected to lobby the new Minister of National Heritage, Virginia Bottomley, to revise the planned legislation.

Whatever the outcome of efforts to diversify into new formats, most executives in the sector believe the "information superhighway" is still a long way off, and that good old-fashioned newspapers have bright prospects.

"The key strategic issue is whether you believe regional newspapers are a good long-term business," Mr Brims says. "Clearly, we do."

The top regional publishers

Owner Representative Market newspaper share

Trinity International Liverpool Echo 13%

Daily Mail & General Trust Nottingham Evening Post 9.0%

United Yorkshire Post 8.1%

Reed-Elsevier Worcester Journal 6.7%

Pearson Oxford Mail 6.3%

Midland Independent Birmingham Post 3.4%

EMAP Peterborough Evening Tel. 3.4%

Portsmouth & Sunderland Portsmouth News 2.8%

Johnston Press Fyfe Express 2.8%

Southern Newspapers Southampton Evening News 2.6%

Source: PressAd Data Base; company information