May 3, 2018 / 10:24 AM / 5 months ago

Breakingviews - UK tabloids’ dire top line strengthens M&A case

LONDON (Reuters Breakingviews) - Britain is famous for its pugnacious tabloid journalism, but advertisers are no longer willing to fund it. That makes cost-saving tie-ups between ideological rivals like the Daily Mirror and Express newspapers a necessity. Blocking such deals under the banner of safeguarding media plurality would be self-defeating.

The two newspaper titles owned by Express Newspapers alongside The Mirror newspaper, which is owned by Trinity Mirror, are seen on display in a newsagents in central London, Britain, February 9, 2018

Trinity Mirror’s latest trading update, released on Thursday, underscores the industry’s dire financial straits. Revenue at the owner of the left-leaning Daily Mirror fell 9 percent in the first four months of the year. Digital sales grew slightly, but that’s little comfort since 85 percent of the group’s 580 million pounds of publishing revenue last year still came from print.

The company led by Simon Fox lacks a wealthy financial backer, like the Guardian’s Scott Trust, or a diversified parent like the owners of the Sun and Daily Mail. That’s why buying up rivals and slashing joint costs is the only viable strategy. Trinity Mirror has saved 15 million pounds a year by sharing printing and other back-office jobs since the 2015 acquisition of regional franchise Local World. That helped cushion the hit from plummeting sales: the group’s adjusted earnings per share fell 5 percent last year even as revenue contracted by 13 percent.

Savings from Trinity Mirror’s 127 million pound purchase of the Express and Star titles from mogul Richard Desmond may be at risk, though. British Media Secretary Matt Hancock on Tuesday initiated a review of the deal to make sure it doesn’t hamper “free expression of opinion” or reduce the plurality of views available in separate newspapers. On the face of it, the concern seems overblown. New owners are unlikely to risk alienating pro-Brexit Daily Express readers by watering down its fiery editorial tone.

Crucially, it’s hard to see a future for the family of papers known for their hysterical coverage of the weather and immigration if the takeover is blocked. Revenue at the Express and Star titles fell by an estimated 5 percent in the first four months of 2018. The buyer has also promised to pump 41.2 million pounds into its target’s pension scheme. Rejecting the deal would threaten the media diversity that regulators are supposed to defend.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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