Old-fashioned newspaper war looms in the capital

Love him or loathe him, Rupert Murdoch has had an unparalleled impact on British newspapers. He turned The Sun from a dull, commercial catastrophe into Britain's biggest-selling daily newspaper. At Wapping in the 1980s he smashed the power of the print unions and changed the economic model for newspaper publishing. Now, with an operation code-named "Project Gold", he plans to change newspaper ecology again by launching a free afternoon newspaper for Londoners.

Inside Fortress Wapping, a team that includes advertising executive Stefano Hatfield and former Evening Standard managing director Mike Anderson has been working for months under News International chairman Les Hinton.

Official comment is scarce as recruits to the new title have signed a confidentiality agreement. But a News International insider says: "Of course we are interested in the free newspaper market. We'd be fools not to be."

Two London distribution franchises are up for grabs. The largest, owned by London Underground operator Transport for London (TfL), will permit a new afternoon title to be disseminated via so-called dump-bins at 275 Tube stations. These are the bins used by Associated Newspaper's successful free morning title Metro. The second opportunity is being auctioned by Network Rail (NR). It will allow afternoon use of existing Metro bins on London's 10 principal mainline stations.

Access to underground and railway distribution was granted after a complaint by Daily Express proprietor Richard Desmond to the Office of Fair Trading over the exclusive access agreement of his great rival Associated. The latter retains its exclusive right to morning distribution until March 2010 but, last April, the OFT ruled that access to the afternoon market should be widened.

A Network Rail spokesman says: "News International has gone much further than other bidders in putting its team together. It has been very thorough about preparing its bid and the title is thoroughly worked through.

A source who has seen the TfL bids says: "News International has done an impressive amount of work. Its title is ready to publish. Now the question is how much it is prepared to pay."

Network Rail has completed its scrutiny of initial expressions of interest. It will auction its franchise to a shortlist of preferred bidders in an electronic process beginning this week.

Transport for London is only slightly behind. "We have had bids from all the people you would expect to be interested," says a spokesman "Our formal invitations to tender will be sent out by the end of July." The Mayor of London, Ken Livingstone, who will make the ultimate decision about the TfL contract, claims it is worth £10m.

Insiders allege tension between NR and TfL about the preferred outcome. TfL, whose three million daily tube journeys have helped Metro to a London circulation of 900,000, is said to want the same bidder to win both franchises. NR sees the opportunity to distribute a free, weekday newspaper to the million passengers who pass through its London stations daily as sufficiently attractive to merit the launch of a separate, stand-alone title.

If the NR and TfL tenders are awarded to different newspaper groups, Londoners will see two different free afternoon and evening newspapers competing with Associated's paid-for Evening Standard. There are plenty of bidders, but some industry insiders question whether either of the franchises is really worth buying.

"Everybody is looking at the success Metro has made in the morning," says Press Gazette editor Ian Reeves. "But Associated always points out how much it has invested to achieve that. It is foolish to imagine that these things are a licence to print money."

Others point out that city evening newspapers are in decline around the world, that London evening titles have lost 3.8 million paying customers in the past 50 years and that the internet is wreaking havoc on such traditional revenue streams as classified advertising.

Rupert Murdoch seems more optimistic. Project Gold has already begun recruiting journalists, including the diarist Dominic Midgley, former New York Post writer Bridget Harrison and arts specialist Lottie Moggach.

One executive at a free newspaper says: "The people News International has recruited suggest he is deadly serious. They could appoint all these people and not launch, but I would be very surprised if Murdoch did that."

Insiders say he thinks free newspapers can attract readers who do not buy conventional titles, particularly young, affluent urban professionals.

Murdoch is known for his bullishness. What would be most bullish of all would be for him to launch a paper despite not winning a franchise. And that seems to be his thinking. A senior News International source is emphatic. "We will do something before Christmas. It does not require us to win either franchise."

Although it has been successful in cities around the world, on-street distribution without the use of fixed and branded bins has long been thought unrealistic in the British market. Then the London financial freesheet City AM launched last autumn, achieving a daily readership of 100,000 within months.

Murdoch's apparent view is endorsed by City AM chief executive and founder Lawson Muncaster. "I don't think having a franchise makes sense," he says. "If the editorial content is right, people will take a copy anyway. Our readers pick up City AM because it contains information that makes them better prepared to do their jobs."

Muncaster identifies another flaw in the bidding process. All the dump-bins at underground and railway stations are already branded with the Metro title and intimately associated with it in readers' minds.

"Can you really see those bins being co-branded? It's like asking Celtic and Rangers to share the same football ground. The only hope for Ken Livingstone is if Associated buys the afternoon franchise as well." (In which case, many assume, Metro would be likely to transform into a twice-daily paper.)

So, could the old dictum that you can't distribute evening papers in London "without the stations" be wrong?

Ian Reeves at Press Gazette is unsure. "I don't think City AM has conclusively proved the alternative distribution method. Nobody can be certain that it will work for a London-wide title."

But a former executive of the giant Swedish free newspaper pioneer Metro International (no relation to Metro) says the calculation is purely financial. "To cover the entire London area you need about 600 distribution points. That means 600 employees at about £10 per hour for two hours per day 245 days per year. It amounts to a distribution cost of between £3m and £4m per year.

So the real question is whether you can get the Tube franchise for £4m per year, or do you spend that money on your distribution force? Even if you do get the franchise for that, you've still got the problem of double bins."

Murdoch has always seen himself as a radical agent of change. Now the old revolutionary has a new opportunity to test the faith that free distribution can spread the newspaper habit to a new generation, so adding value to his existing paid-for titles.

He does not even need to win expensive franchises to start a war that will cost major competitors at least as much as it will cost him. It promises to be an intriguing battle, one with the potential to prove that print is far from dead.

MEDIA DIARY

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