Media firms look to diversify in downturn

The media industry this week gave its clearest signal yet that traditional operators are finally getting to grips with the challenge posed by online rivals.

Advertising revenues remain firmly under pressure, but figures from broadcaster ITV and newspaper group Johnston Press were warmly received in the City as they showed profits continued to rise.

Although cost-cutting has formed a key plank of their resistance, both groups have pushed hard into bulking up what they can offer customers using digital technology and via the internet.

ITV successfully offset a £50m (€73m) decline in advertising revenues at its flagship ITV1 channel by developing more digital channels and diversifying its revenue stream, including through websites such as Friends Reunited.

And while Johnston’s latest revenues figures made grim reading in some sectors - particularly recruitment advertising – the company said it believed the downturn was cyclical rather than structural.

Mike Waterson, research adviser at the Advertising Association, said the moves by the pair reflected the start of a new chapter for the advertising industry.

“It’s all a matter of fragmentation and it’s been going on forever. If you think back 50 years, advertising was all in the press and on posters, and then television and radio came along.

“It has always progressed and it will continue to do so. At the moment it is moving towards electronic media such as the internet, but there is still a whole host of new newspapers and magazines being produced.”

He added: “Just look at Metro, which has appeared at train stations all over the country in the last few years and relies on advertising.”

While Metro continues its expansion around the country – Liverpool became its 14th city this month – the past year has seen the launch of 13 new regional titles.

But the main developments have come elsewhere, with the regional press now owning 400 stand-alone magazines and over 500 websites, as well as 21 radio stations and two TV channels.

As well as diversification there has been cost-cutting, with both Trinity Mirror and fellow publisher Northcliffe, which is owned by Daily Mail & General Trust, among publishers to announce job cuts recently to combat falling advertising revenues. Cover prices on many newspapers have also increased.

Johnston – which owns titles such as The Scotsman and the Yorkshire Evening Post – said there was no sign of an early recovery in newspaper advertising after it suffered a 17.3% fall in its key recruitment sector last year.

It followed a warning from Daily Mirror and Newcastle Evening Chronicle owner Trinity Mirror that the advertising slowdown in the second half of 2005 was gathering pace, with revenues down 13.5% in January in February.

ITV added that advertising across the whole group was likely to be 10% lower in the first quarter of 2006, and DMGT has also reported falling advertising revenues at the Daily Mail, Mail on Sunday and London Evening Standard.

The main downturn in newspaper advertising last year was in the classified job sector as recruitment levels dropped, but Johnston chairman Roger Parry said it reflected cut backs in local government recruitment and a general slowdown in the economy rather than migration of spending to websites.

Indeed, many newspapers reported an upturn in property advertising as the housing market recovered, while the Financial Times saw advertising revenues rise 9% last year as buoyant stock markets and frenzied takeover activity boosted business in the City.

Man Group analyst Meg Geldens said: “The FT depends on how the markets are doing, whereas other papers depend on different areas of the economy.”

The most recent figures from the Newspaper Society show that £3bn (€4.4bn) was spent on advertising in regional newspapers in 2004.

One of the biggest spenders on advertising is the Government – it was second only to Procter & Gamble in 2004 – and the General Election boosted revenues for the press in the first half of last year.

Mr Waterson said: “Whether this downturn in newspaper advertising is part of the usual ups and downs of the industry, or whether it is a permanent shift to other forms of advertising, remains to be seen.”

But whichever it is, traditional media groups are branching out to take advantage of the changing landscape.

The Newspaper Society said: “One of the biggest trends in the industry at the moment is that publishers are diversifying to other parts of the media to survive.”