Murdoch May Get Out-Murdoched

Philip M. Stone June 24, 2010 Follow on Twitter

UK national newspaper publishers still shudder at the Rupert Murdoch inspired newsstand war fought to protect The Times that began in 1993 and took 15 years to end with rivers of red ink flooding Fleet Street. Now Richard Desmond who has his own tabloid and magazine publishing empire says come July he’s starting another price war targeting tabloids by cutting the price of his Daily Star by half.

That’s the last thing Murdoch needs right now -- a price war to protect his circulation-leading Sun and the Sunday News of the World tabloids that already have seen big circulation declines over the past few years. Right now he’s busy erecting Internet pay walls for his Times and Sunday Times – so the business model is to bring in more money, not less. But Desmond has the financial capability to make life difficult -- he said in a recent interview, “I’ve got so much money it’s ridiculous” -- and by reducing the price of his Daily Star from 20 pence to 10 pence he could well test Sun reader loyalty.

The Sun carries a cover price of 30 pence but for some time now it has been discounted to 25 pence and even 20 pence depending on where it is sold in the UK in a failing effort to keep daily circulation above 3 million. But will it follow The Star down to 10 pence? Trinity-Mirror’s Daily Mirror would appear at most risk with its non-discounted 45 pence newsstand price coupled with a policy of not getting involved in price wars but tabloids are aimed at the so-called “working class” so price could well matter.

Desmond wants newsstand owners to suffer in the carnage, too, but he may have a fight there, too, on his hands. He has been paying newsstands commission as if The Star cost 25 pence which it did back in 2008, but now Desmond says the commission will operate on the basis of a 20 pence title and newsstand owners are not happy with the resulting 4.84 pence per sale that gives them. They’re warning they might “cover stick” the newspaper – keep selling it at a higher price – or choose  not to stock many copies in favor of The Mirror that pays out 10.71 pence per copy sold.

The math tells why a war could be decimating. If The Mirror, for instance, were to match The Star’s 10 pence price then that would cost it some £350,000 in daily circulation revenue. That’s around £100 million annually. Suicide. But if enough of its readers were to migrate to the much cheaper Star then what?

Desmond is rich -- according to the Sunday Times Rich List his personal fortune is close to £1 billion, let alone the profits his publishing empire earns. He can afford to stretch out a price war and spend silly money if necessary. Five years ago, for instance, he launched a US version of his very successful OK! Magazine and according to the financials through 2009 he’s down some $175 million.  On the other hand he has bought market share – it is now the eighth largest circulation US newsstand magazine and there are no indications the investment won’t continue.

Desmond’s has hinted in a radio interview that he is interested in buying The Sun although others say what he is really after is The Mirror.  The Sun has a circulation around 2.9 million, The Mirror is around 1.3 million, whereas the Daily Star stands at around 823,000 so Desmond believes his competition has a lot more to lose and he  has much to gain by buying in their readers.  Also in Desmond’s favor is that the Star in the last year has been adding readers whereas the Sun and the Mirror have been losing readers.

No doubt for 10 pence The Star will get tried and if enough stick with the word of mouth saying it’s good enough then Trinity Mirror and News International will need to make some major marketing decisions just as UK newspaper advertising appears to be picking up.

The Sun and News of The World are major cash cows and their profits help cover the huge losses at The Times, but these are still difficult times all around. The Times and Sunday Times recently announced 10% editorial cutbacks and Trinity Mirror says it is dumping 200 editorial staff – some 25% -- from its three national newspapers.

Desmond also publishes the Daily and Sunday Express and Daily Star Sunday so it seems he is into expansion. There has been talk that he might bid for Channel Five, the independent terrestrial TV station that RTL says it wants to sell.

His empire is not Murdochian, but he is just as relentless in the pursuit of what he wants.  And he is a real character. Six years ago when the Telegraph newspapers were for sale and the German Axel Springer Group showed interest  Desmond, who also wanted the newspapers, met with Telegraph executives and allegedly started talking in mimic German, giving his imitation of Adolf Hitler with Nazi salutes and goose-stepping. The Telegraph executives were not amused, the Germans eventually bowed out, but Desmond lost out, too, as the papers went to the secretive Barclay Brothers.

Desmond and Murdoch have more in common than each may think. Desmond was despised in UK publishing circles because he made his fortune in the sexy magazine business.  When Murdoch started out in the US he was the despised tabloid guy who disgraced journalism. Success changes perception. Each man has been through many business wars but Murdoch recently has been willing to throw in the towel if the numbers aren’t right – last year he closed his free London evening paper which had multi-million pound losses -- so if Desmond is really willing to take on barrels of red ink to boost market share then there’s no telling what the UK tabloid landscape might look like when the shelling stops.

See also in ftm Knowledge

Rupert Murdoch and News Corporation

News Corporation is a highly competitive media giant a global, multi-media footprint. From paywalls and pay-TV to tabloid troubles and new ventures the media industry watches Rupert Murdoch. Update includes family ties, succession plans and other News Of The World. 172 pages PDF (April 2011)

Order here

UK Newspapers

The newspaper market in the UK is among the worlds most competitive. The publishers are colorful, editors daring, journalists talented and readers discerning. ftm follows the leaders, the readers, the freebies and the tabloids. 83 pages PDF (October 2010)

Order here