Independent ‘volunteers’ to be the digital lab rat

The decision to close The Independent’s print operations is not going to be a one-off, writes Dominic Mills

To an unhealthy degree, I’ve long thought, newspaper publishers over-obsessed about their rivals. They spent more time trying to copy them than they did jumping one step ahead.

But as of now, and even more intensely from March, they’ll be obsessing about The Independent, as it becomes the first national newsbrand to drop print and go exclusively online.

In this sense, the paper has cast itself as the first digital lab rat, and its peers (I was going to say rivals, but it is so diminished it’s effectively in a category of one) will be studying it intensely through the microscope.

How do they staff it, and how many journalists can be got rid of? Can they transfer its brand values online? Will it charge, and if so how? Does it do ‘news’ or ‘views’?

They’ll be relieved too, because none wanted to be the first. In their eyes, any benefits of ‘first-mover advantage’ from dropping print are overwhelmed by peer group ‘first-mover shame’.

Nevertheless, digital-only is where they are all headed; it’s just a question of degree (i.e. do they phase print out completely, or gradually) and timing.

Some will say that i, on its way to Johnston Press, has effectively propped up its elder sibling for the last few years.
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I always saw it as the cuckoo in the nest. As i‘s circulation rose, so The Independents’ fell. The i is now at 269,000 and its elder brother a mere 56,000. Strip out bulks and frees, and then exclude the Saturday, the true Monday-Friday average is closer to 30,000.

But it looked more like mutual support at first. The i took copy from the bigger paper, but in return took on a younger, less London-centric readership, and provided a better combined sell to advertisers. The hope was also that this cohort would trade up to the main paper. Obviously, they didn’t.

But mutual support turned into toxic co-dependency. The main paper couldn’t exist without the extra revenue from the combined sale, but i couldn’t without the free content. Take out one element, and the other would collapse.

This means other national publishers who had been negotiating to buy i (Trinity-Mirror, we’re looking at you) or set up their own version, better be careful.

Moreover, the idea that Johnston is prepared to pay £24m for i, on the basis that, in the Lebedev’s words, it made an “unaudited carve-out profit of £5.2m” last year, strikes me as insane.

I have no idea of what a ‘carve-out’ profit is, but it sounds a bit dodgy to me, especially if it’s unaudited. As I understood it, i – which has a total dedicated staff of less than 10 (albeit a claimed figure of 51) – has never been subject to proper accounting, so the true cost of generating its content was mostly covered by The Independent.

The arcane ins and outs of cost accounting aside, there’s no doubt i delivers a good audience. I understand it includes a large number of students, and is therefore strong in big university towns like Manchester, Leeds, Sheffield and Bristol. It also has a decent sale in Scotland (who knows why? Lack of competition, perhaps), both of which will play well to a regional publisher like Johnston.

Johnston has initially outlined its plans here, including taking i to Northern Ireland, which makes sense to me.

Investors broadly appear to like the deal, even though at £24m it is more than half Johnston’s market capitalisation.

Meanwhile, advertisers and media buyers will mourn the change. I suspect they didn’t actually give a monkey’s about the papers themselves, except insofar as they were a) a cheap alternative b) a useful weakling to bully if negotiations with other publishers got tough and c) bit of sport when they felt like taking it out on someone.

Have a bet on Cannes

If you think Cannes is the vampire squid of the advertising business, hoovering up money all over the place, you could do worse than buy a few shares in its owner Ascential.

Last week the company – formerly known as Top Right, formerly Emap, and probably formerly some other meaningless name too – listed on the stock exchange.

For people in our world, Ascential is best known for Cannes and its smaller sister festivals (equivalents comprise Spikes in Asia, Lynx in the Middle East and Eurobest). It also runs other festivals, including in fashion and finance.

Ascential’s prospectus doesn’t break out all the Cannes cash specifically but, assuming Cannes performs in line with its other face-to-face activities, you can see where the money comes from, and relatively speaking, how much more profitable they are than its other activities.

Close reading of the prospectus yields the following numbers:

-Cannes revenue in 2014 was £41m
-The margin on festivals (all, not just Cannes) is 39%. Ascential makes great play that Cannes is one of its top two performers, so its margin is probably even higher
-Paying delegates increased from 7,500 to 9,500 (over 25%) between 2012-14
-They’re paying more each year to attend (8% on a compound annual growth rate (CAGR) in the same period)
-Entries increased from 34,000 to 40,000 (17%) between 2012-14
-Glory-chasing agencies are paying more each year to enter – 10% on a CAGR basis
-A decent chunk of the money – about 12% – comes from stuff like selling showreels, duplicate trophies and, I suspect (but unspecified), a cut of hotel room charges

Cannes is a jewel in Ascential’s crown, and the fact that is now on a public growth treadmill means we can expect ever-more ingenious ways to separate the ad industry from its hard-earned cash.

Everything, but everything, will increase in price, and categories will expand exponentially.

And where will some of that money go? Why, to the Guardian, which still owns 23% of Ascential, having flogged off a small portion of its stake as part of the IPO.

In simplistic terms, this means that about 23% of every £ or € profit Cannes makes from you, dear reader, goes to – depending on your view – a) preserve the Guardian or b) save it the bother of having to make a profit itself a little longer.

I once pointed this out to a friend who works for Top Right, who was distinctly unimpressed and whose motivation disappeared almost overnight.

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Comment from Newsworks:

“There’s no denying that digital will continue to play a defining role in the future of newspapers and you’re right that The Independent’s decision will be watched with interest by the industry. What’s good to see though is that since the newspaper’s digital-only future was announced, there has been an outpouring of appreciation for its journalism, values and ethos, with a confidence that these traits will continue to live in its online form – its 67 million global unique browsers a month is a pretty good place to start.”