Battle of Britain’s Free Newspapers

A distributor handing out The London Paper in Piccadilly Circus. The free paper, published by Rupert Murdoch’s News Corporation, says it has a circulation of about 502,000. A rival’s circulation is put at 400,000. Read original article

British tabloids typically send out paparazzi to poke into the lives of the royals, soccer coaches and supermodels. Lately, however, two free newspapers fighting a circulation battle on the streets of London have turned the cameras on each other.

One of the papers, London Lite, sent a video recently to media buyers that showed distributors ostensibly dumping 2,900 copies of its rival, The London Paper, into garbage bins. The London Paper responded by saying that it had pictures of dumped copies of London Lite.

The accusations matter to advertisers because newspaper ad prices are largely based on circulation. The British Audit Bureau of Circulations, an industry group, said that it would investigate.

The London Paper has a circulation of about 502,000, according to the audit bureau, in contrast to 400,000 for London Lite. But analysts say it is hard to know how many of those copies are actually read, because The London Paper and London Lite are distributed by street hawkers who try to press as many copies as they can into the hands of evening commuters.

“It’s all very well giving people a paper, but you then have no idea what they do with it,” said Jane Wolfson, head of nonbroadcast media at the London office of Initiative, a media buying agency.

The distribution method has also irked municipal authorities, who want London Lite and The London Paper to contribute to their recycling costs.

London free sheets are not the only newspapers that have faced circulation problems. In the United States, for example, a number of traditional papers bought by subscribers or sold on newsstands have been punished by the American audit bureau over the last few years for inflating their reported sales figures, sometimes through dumping.

One way around the problem might be for advertisers to look more at a newspaper’s readership and to pay less attention to circulation, said Piet Bakker, a journalism professor at the University of Amsterdam who tracks the free newspaper market. Readership is measured through surveys asking consumers which newspapers they regularly read. So papers that are dumped, by consumers or distributors, would not show up.

Because London Lite and The London Paper started publishing only last September, readership data is not available yet. Given the uncertainties, Ms. Wolfson said, advertising in free papers might be more expensive than in traditional London tabloids like The Sun, at least under the ad industry’s standard price comparison gauge, the cost of reaching 1,000 readers.

Ms. Wolfson said that from an advertiser’s perspective, the free papers had made up for that possible shortcoming through the “creativity of their executions.” For instance, they sometimes wrap articles around unusually shaped ads, to try to draw readers into the advertising.

With more than 26 million free newspapers circulated daily across Europe, Mr. Bakker said, the publishers are increasingly battling not just established papers that are sold, but also each other, for readers and advertisers. In Denmark, a hypercompetitive market for freebies, one of five such papers shut down in April.

In London, the battle between The London Paper and London Lite features the added element of Fleet Street rivalry. London Lite is owned by Associated Newspapers, publisher of The Daily Mail and The Evening Standard, while The London Paper is published by the News Corporation, which also owns The Sun and The Times.

As the battle between the free newspapers has heated up, each has taken out ads in trade publications aimed at media buyers and ad executives.

London Lite said that it had hired a former Scotland Yard detective inspector, Philip Swinburne, to uncover dumping of The London Paper.

“Now, how much does The London Paper charge you for advertising?” the ad asked media buyers. “D. I. Phil might call that daylight robbery.”

The London Paper countered by accusing Associated Newspapers of mounting a “dirty tricks campaign to destroy competition in the London newspaper market,” adding that it had dismissed the “rogue distributors” who dumped the copies.

Newspaper journalists sometimes joke grimly about how quickly their work ends up wrapping fish and chips or lining the cat box. For advertisers, who pay good money to cozy up to readers, even those ignominious ends must seem better than the reported fate of some free papers in London.

Betting on the future of low-profile print publications.

He understands the value of these regional newspaper franchises. A few people on the stock market forgot that.

As Rupert Murdoch trains his sights on Dow Jones & Company, owner of The Wall Street Journal, another veteran of the British newspaper wars is betting on the future of lower-profile print publications.

Last week, while Mr. Murdoch wooed reluctant Dow Jones shareholders and as the financial information providers Thomson and Reuters were explaining their case for a possible merger, David Montgomery was quietly seeking to buy control of the Dutch publisher Koninklijke Wegener.

Koninklijke Wegener’s newspapers, including De Twentsche Courant Tubantia, may not have the global name recognition of The Wall Street Journal, but they attracted a bid of up to 806 million euros, or nearly $1.1 billion, from Mr. Montgomery, through Mecom, the London company that he heads.

In a series of deals since 2005, Mecom has acquired more than 100 local and regional newspapers in the Netherlands, Germany, Poland, Denmark, Norway and Ukraine at a cost of more than 2 billion euros.

Mr. Montgomery, a onetime copy editor who was chief executive of the Mirror Group of newspapers in the 1990s, is going after smaller targets than Mr. Murdoch or Samuel Zell, the Chicago investor who recently bought the Tribune Company, owner of The Chicago Tribune and The Los Angeles Times.

But his acquisition spree reflects similar trends, analysts say. After several years of handwringing about readers and advertisers defecting to the Internet, some investors see value in old-fashioned print publishers — at least, if their share prices have fallen enough to create bargains.

“There’s a lot of money sloshing around, and things are not as bad as people suggest,” said Gavin O’Reilly, president of the World Association of Newspapers, during a presentation last week to journalists and financial analysts in London.

Mr. Montgomery, who started Mecom in 2000, is bullish on the industry despite — or perhaps because of — the often-cited threat of the digital media revolution.

“We are in the most exciting stage of development not only in the history of our business but also the entire history of print,” he said last week in a phone interview. “Newspapers have totally underestimated the main resource they have, of content gathering and content projection.”

So far, newspapers in Europe may have lost fewer readers to the Internet than their counterparts in the United States, analysts say.

Last year, circulation of paid-for newspapers rose 0.7 percent in Europe, in contrast to a 2 percent drop in North America, according to the World Association of Newspapers, which is based in Paris.

But like North American newspapers, European papers have been hurt by a more sluggish advertising market.

Over the last five years, newspaper ad revenue has risen only 11 percent in Europe, compared with 16 percent in North America and 21 percent in Asia, according to the newspaper association.

Harsh business conditions have created an opportunity for investors like Mr. Montgomery, a native of Northern Ireland. In 2005, Mecom and a partner, the New York investment firm Veronis Suhler Stevenson, bought control of the owner of Berliner Zeitung, becoming the first foreign owners of a major German newspaper.

Mr. Montgomery’s reputation as a cost-cutter in Britain preceded him, and his investment in Berlin prompted protests from the paper’s journalists.

The editor who led the revolt, Uwe Vorkötter, has since been replaced, and Mecom has moved to take full control of Berliner Verlag, the paper’s parent company.

Mr. Montgomery has said he wants to raise profit margins across the company, in part by cutting costs. But that may be more difficult on the Continent than in Britain, where labor protections are weaker, analysts say.

“Montgomery still has to prove he can do that in Europe like he did in the U.K.,” said Oskar Tijs, an analyst at Kempen Research in the Netherlands.

By keeping costs low, some publishers in Britain have turned regional papers into a lucrative business. One of these companies, Johnston Press, has enjoyed profit margins of more than 30 percent in recent years.

On the Continent, margins are typically tighter, in part because costs are higher. Employees at Koninklijke Wegener, for instance, receive 70,000 euros (about $95,000) in annual pay and other benefits, considerably more than their British counterparts, Mr. Tijs said.

Still, Mr. Montgomery is not the only European publisher who is sanguine about the prospects of Continental newspapers.

Axel Springer, the German publisher of the tabloid Bild, recently started a paper in Poland, and it plans to introduce a tabloid this year in France, one of the most depressed European newspaper markets in recent years. And Metro International and other publishers of free newspapers have expanded rapidly across the Continent; two-thirds of the 40 million free dailies circulated globally are distributed in Europe, according to the newspaper association.

Mecom is not wedded to any one type of publication. It owns or holds majority stakes in paid-for broadsheets like Berlingske Tidende in Denmark and Rzeczpospolita in Poland, as well as tabloids and free papers.

One of the advantages of owning large clusters of newspapers, Mr. Montgomery said, is the economies of scale. Mecom has been able to eliminate overlapping administrative jobs, he said, and to buy newsprint and other supplies in bulk.

“Scale is not just a defensive mechanism through cost reductions,” he added, “but also part of an offensive strategy, in terms of generating new lines of revenue.”

Consolidation has helped small publications with limited resources develop an online presence, he said. And Mecom is also prodding its papers to develop new business lines that tap existing subscribers, selling them wine or financial services, for instance.

Despite moves to make the papers more businesslike, Mr. Montgomery insisted that editors, not business managers, maintained control over content. But he said journalists “have to understand the commercial realities of a changing newspaper environment.”

Mr. Montgomery said he would continue to look for opportunities to expand, primarily in Northern European markets with fragmented newspaper ownership.

Mr. Tijs said: “I think he understands the value of these regional newspaper franchises. A few people on the stock market forgot that.”