Friday, May 08, 2009

The future looks grim for The Independent

The crisis that is devastating the US newspaper industry is now spreading to the UK. The future of the London titles "The Independent" and "The Independent on Sunday" is looking extremely doubtful with closure likely if a buyer cannot be found in the next few weeks. Irish parent company Independent News and Media (INM) announced in late April it had failed to reach an agreement with lenders over a $270m (US) bond that it must repay by 18 May. This is part of a larger company debt which has now blown out to $1.75 billion.

INM, which announced losses of $216m in 2008, is under increasing pressure from bond holders to dispose of the flagship Independent titles which are understood to lose at least $15m a year. The problem will now become Gavin O’Reilly’s to solve as he takes over as chief executive of INM from his 73 year old father Tony O’Reilly. O’Reilly (junior) also announced this week that the Australian arm APN (which INM owns 39.2 percent) is also likely to face cutbacks as the parent company struggles with its debts.

But it is the British mastheads that are his biggest worry. In 2004, the two Independent titles were valued at $226m but are now worth a fraction of that price. Yet there is no rush of buyers for the loss-making paper. Potential owners are put off by the size of the pension fund deficit, falling circulation, declining advertising revenues and the cost of laying off more staff. O'Reilly is now hoping a cost-saving office-sharing arrangement with the Daily Mail will buy time for the newspapers until the economy improves. The Independent is moving from Docklands to the Kensington headquarters of Associated Newspapers, which owns the Daily Mail and the Mail on Sunday. Journalists at the paper however are unhappy with the move to co-locate with titles that pursue a very different form of journalism to The Independent. And morale is already low among staff. The Independent has suffered two rounds of redundancies in the last two years. The 430 staff that remain have been told they need to work 25 percent longer hours to cope.

Even these sacrifices may not be enough to save the papers. Irish mobile phones billionaire Denis O’Brien has muscled his way into power at INM with 26 per cent of the shares and a seat on the board. He is believed to be supportive of shutting down the Independent titles to help bring the business back into the black. There is also the issue that he may still be nursing a grievance about the paper’s coverage of allegations that he once bribed a minister. In April, he gave a strong signal on his position saying "management needs to remain focused on eliminating loss-making businesses and all stakeholders need to work together to ensure that value is protected.”

The holding company Newspaper Publishing launched The Independent on 7 October 1986 as a broadsheet under the editorship of former Telegraph staffer Andreas Whittam Smith. Within three years it had a circulation of 400,000 and a reputation that lived up to the name of the masthead. Within another year owners launched The Independent on Sunday. The papers then joined the Murdoch-inspired migration to Canary Wharf in 1994. A year later O’Reilly’s INM and Mirror Group Newspapers become controlling shareholders and after another four years O’Reilly bought out the Mirror’s shares. However by then the circulation had dropped to half its 1989 level. It went into so-called “compact” format in 2003 but it did little to lift profits.

Today, its circulation remains the lowest of the London quality dailies and hasn't really moved in a decade selling just over 205,000 copies each day. That compares to 340,000 for The Guardian, 590,000 for The Times and 820,000 for the Telegraph).

One mooted option has been a merger with Alexander Lebedev’s Evening Standard. However Guardian media commentator Roy Greenslade suggests another way out of The Independent’s crisis. He says it could be time for the paper known for its innovations of the compact shape and "the viewspaper" (pictured) to experiment again “by becoming the first serious daily paper to be distributed free of charge in major cities (and paid-for elsewhere).” Greenslade said such a model would prove to be proper competition for giveaways such as Metro and Murdoch’s London Paper. However Greenslade concedes making the Independent free Indy would cause an initial massive hit to revenue “so the risk may be too great for a hard-pressed INM.” But, he concludes, “another owner may well feel differently.”

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