Desmond’s Midas touch
As Richard Desmond looks to sell the Express and Daily Star titles to Trinity Mirror, Raymond Snoddy examines what the deal will mean for the billionaire businessman and the struggling newspaper industry he’s ready to leave behind
As he prepares to exit the media after a lifetime in the business, Richard Desmond, owner of the Daily and Sunday Express, will leave a very strange legacy.
Falling circulations, a staff who had to endure, until recently, an eight year pay freeze, a talent for playing the drums and having an afternoon banana delivered on a silver tray by his personal butler.
Then since 2000 when he bought the Express group for £125 million he has at one time or another supported just about every political party in the UK, apart from the Lib Dems, and more recently has been one of the largest individual donors to UKIP, even though, bizarrely, he said he wasn’t sure how he would vote in the referendum.
Along the way there have also been the soft porn magazines and adult TV channels, which may have permanently cost him a knighthood or a peerage, even though he no longer owns them.
Yet there is one characteristic where Desmond is deadly serious and where he rules supreme – squeezing the maximum amount of profit from assets facing increasing competition and structural decline.
The Daily Express owner, who started work at 15 in the classified advertising section of the Thomson Group, is now believed to be worth more than £2 billion and should soon be able to bank another £120 million or so if the sale of his remaining publishing businesses to Trinity Mirror goes through.
In terms of the greatest returns in the shortest time, his four-year ownership of Channel 5 was probably his greatest financial achievement.
Desmond bought Channel 5 for £99 million from RTL in 2010 and sold it for £463 million to Viacom, owners of MTV, in 2014.
Recently The Independent revealed that Desmond made even more out of the channel than previously believed. A dividend of £69 million was paid out of the profits of the channel to Northern & Shell, a company owned in its entirety by Desmond, just before the sale.
Yet if you look across the 17 years that Desmond has owned the Express and the Daily Star it is clear that the papers have provided just as big a boost to his nest egg as Channel 5 because of the millions taken out of the company in pay, pension payments and personal dividends over the years.
During his ownership of Express Newspapers Desmond is estimated to have earned more than £350 million in pay, pension payments and dividends. In the system there is a further £100 million paid by the Express Group in rent to another Desmond-owned company.
Should Desmond now get close to getting his original purchase price back it will truly be the icing on the cake.
We will never know how the Daily and Sunday Express would have fared if Desmond had been prepared to invest more of those dividends in the titles and relied less on English weather and Princess Diana stories.
During his tenure the Daily Express has fallen from 1 million in 2000 to 380,000 now, while the Sunday Express has dropped from 950,000 to 330,000.
The Daily Star has managed better and circulation has only fallen from 450,000 to 420,000.
Given that the Daily and Sunday Express have an older readership concentrated in the north of England, and that the sharpest circulation declines have come at the popular end of the market, the Desmond decision to avoid throwing good money after bad may have been the rational one in financial terms.
But what of the ambitions of Trinity Mirror – and will they grant Desmond’s desire to get out of the newspaper business? The papers have reportedly been on sale for years but the price was never right and there are also large pension fund obligations involved.
Probably because they see the advantages of consolidation and Desmond, who wants to specialise in property in future, must be acutely aware that he will not be able to find a buyer for a wasting asset forever.
There will almost certainly be many last-minute squabbles about price before a deal is finally done but the advantages of consolidation to Trinity Mirror, which has already expanded in the local and regional press with the Local World deal, are great enough to push this deal over the line.
There are, of course, two forms of consolidation. One is in a rapidly expanding sector where the race is on to dominate the future and create a monopoly if you can (and the competition authorities allow it to happen).
The other involves the consolidation of decline, a huddling together for warmth in troublesome times.
There is no doubt what this one is.
Once trying to bring together the Daily and Sunday Mirror and Sunday People with the Daily and Sunday Express and the Daily Star and a celebrity magazine would have raised more than a regulatory eyebrow.
Now the economic case for the publications coming together is very strong and should dominate the sensibilities of any Competition and Markets Authority inquiry.
The national newspaper market is still clearly segmented and there would remain serious competitive rivals in the sectors that would be affected by any Desmond-Trinity Mirror deal.
The Daily Mail is still by far the most powerful player in the middle market just as The Sun is at the more popular end.
It would mean, however, that three companies – Murdoch’s News Corp, DMGT and Trinity Mirror – would, in effect, dominate all but the upper end of the UK national newspaper market to a new degree.
In current circumstances the only real surprise is that this new level of consolidation has taken such a long time to materialise.
More journalists, sales and backroom staff will lose their jobs to achieve the savings that will drive the deal and there will be a lot of Trinity Mirror stories that will find their way into multiple titles.
The current number of titles will probably survive because all evidence from the past suggests that, for instance, banging the Sunday Mirror and the Sunday People together would simply lead to an acceleration of sales decline.
Given the political differences involved, small, separate editorial and commissioning hubs to retain the flavour of the titles will probably be the order of the day.
The biggest hope for the newspaper industry is that Trinity Mirror will find a way to invest more than Richard Desmond was ever prepared to do.