INM’s future is constrained by flux and data breach

What next for the day-to-day business of Independent News & Media (INM), daily publisher of newspapers and websites, and now regular star of awkward, unflattering headlines?

The question is not easily answered, as it seems likely to remain for some time yet in the expensive, energy-consuming and brand-critical clutches of the Office of the Director of Corporate Enforcement (ODCE), which is investigating an alleged data breach from Talbot Street.

Yesterday, at the High Court, INM sought a judicial review of a rare ODCE application to have inspectors appointed to the company.

INM shareholders, meanwhile, have been told that the board and the management remain “fully focused on the business” and that day-to-day operations will be “conducted as normal”.

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As this implies, the potential for a high and persistent level of distraction is clear – and the media group should rightly be well-occupied by efforts to navigate a choppy, challenging, declining market, without also needing to spend quite so much time with its lawyers.

If inspectors are eventually appointed, the company could incur “material costs”, on top of the higher-than-expected legal bill for 2017 - a year in which INM issued two profit warnings, lost a chief executive and recorded a 32 per cent drop in profits.

Its still sizeable annual profit – €28.5 million – belies the delicacy of its position. Perhaps nothing sums up the corporate volatility better than the view of INM company brokers Davy, which late last month changed its recommendation to investors on the stock from “outperform” to “under review”.

INM appears to be arguing now that many of the ODCE's concerns relate to the man who has left the building: Leslie Buckley, who stepped down as chairman in March. Wisely, there are signs that it is trying to put clear blue water between the Buckley and post-Buckley eras.

Separately, journalists at the Irish Independent and Sunday Independent have demonstrated their own editorial independence through their coverage, which shared details of an ODCE affidavit with their readers.

Heightened circumstances

Nevertheless, INM can only move on so much. The company remains constrained by the special, heightened circumstances that have applied to it since May 2012, when the stake of its largest shareholder, Buckley’s texting partner Denis O’Brien, rose to 29.9 per cent – the maximum that he is permitted to own without making an outright bid for the entire company.

As long as this ownership status continues, and as long as O’Brien also owns national radio stations Newstalk and Today FM, the once oft-stated desire of INM management to grow its business by acquisition will prove next to impossible.

As the example of the abandoned proposal to buy regional newspaper group Celtic Media suggests, even modest-sized acquisitions are likely to meet regulatory resistance, amid understandable news plurality fears.

The march of time may prove to be one of INM's biggest problems

At the same time, INM’s assertion that scaling up is a necessity for survival in the newspaper market is not exactly wrong. So how else can it offset the trend of falling circulation, advertising and distribution revenues, if not by acquisition?

The answer is a word that has fallen out of fashion in some of the more beleaguered quarters of the media: investment.

New chief executive Michael Doorly, who has worked for INM in other roles for two decades, recently confirmed a strategic shift. While the group's large cash pile of €91.6 million might still be dipped into for the odd bolt-on purchase, money will also be put into INM's digital development.

It sorely needs this investment. At just €15.1 million, INM's digital revenues are a mere 5 per cent of its total income. The group operates in a market where digital advertising growth is mopped up by Google and Facebook – and a market where higher traffic does not correlate with higher revenues is a dysfunctional one for ad-dependent publishers.

INM can either sit back and wait for the stranglehold of Big Tech to implode, or it can start chasing consumers for subscription income.

Don’t expect to find a paywall on Independent.ie in the morning: so far, the company has hinted that it plans to “go niche” (develop content and products for specialist audiences) and go west (hunt for ways to monetise a US base interested in Irish sport and general shamrockery).

‘Two to three years’

The march of time may prove to be INM’s second biggest problem. Doorly admitted last month that “two to three years is the kind of time we will need to change the business”, and with advertising and circulation revenues expected to wane further, he bluntly surmised that INM didn’t have any longer than that.

Issues of trust and reputation now threaten to complicate this commercial predicament. Potential subscribers and potential sources need to have a certain faith in INM as an entity before they will commit personal data or sensitive information to its sales and editorial teams. The origins of INM’s “data security incident” may be quite specific, but as the allegations are further teased out in both court and the media, a risk of general contamination arises.

What do "normal" day-to-day operations at INM look like anyway? It is increasingly hard to tell. Since 2012, INM has had four chief executives: Gavin O'Reilly, Vincent Crowley, Robert Pitt and now Doorly. There was also a period, between Crowley's resignation and the recruitment of Pitt, where INM had no formal chief executive at all and was run by Buckley and a trio of other directors.

Substantial debt write-offs in 2013 should have been the beginning of a new era for the once international media group. Instead, INM seems barely out of the starting blocks when it comes to the necessary process of reshaping the company at a time when the media market is fast reshaping all around it.

This is a sorry waste.