Reach chases rainbows amid the news media gloom

Reach plc is the newish successor to the newspaper publisher that used to be called Trinity Mirror, making it the only FTSE-listed company to share a name with a hit song by S Club 7. As corporate identities go, Reach has that modern, vaguely techie, could-be-selling-anything vibe, which serious but old-school Trinity Mirror does not.

Shares in Reach, publisher of self-described "intelligent tabloid" the Daily Mirror, have dropped by about a third over the past year, with sentiment towards its stock not exactly improved by Monday's financial update.

In the first half of 2018, Reach slumped to a loss of £113.5 million (€127 million) thanks to a hefty impairment charge on its regional titles in the UK, having admitted that the outlook for these businesses was “more challenging than expected” and conceded it would close titles wherever there was no path to profitability.

Reach chief executive Simon Fox began his verdict by stating that the company had delivered "a positive financial performance", which would look like a bit of a stretch for Reach had he not followed it up with some of the now-familiar context, "in what remains a difficult trading environment for the industry".

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Indeed, while a discussion of “historical legal issues” – the cost of settling phone hacking claims – may be specific to certain London-based publishers, overall, Reach’s trading update touches on trends that are common to many newspaper groups across markets.

These include waning print advertising, the rising cost of newsprint, the attempt to offset declines in circulation volumes with higher cover prices, the desire for “synergies” after acquisitions and – the big one – the ongoing struggle to satisfactorily replace print revenues with digital ones.

Algorithm blues

While its rival the Sun was busy adopting and then ditching an online paywall, the Mirror aggressively embraced Facebook as a way to extend its audience, er, reach. It was been successful at this, both in the UK and Irish markets. Alas, there is no way of skirting the issue. Algorithm changes made by both Facebook and Google, but especially Facebook, have now "adversely impacted" its digital audience.

This audience is still growing, just not as fast as the 20 per cent growth rate it was targeting. In the meantime, print revenues are falling faster than it would like.

This conundrum for news publishers, neither new nor exclusive to Reach, hasn't gone away. It continues, even as industry outlook statements become increasingly occupied by the nearer-term economic uncertainties posed by Brexit (which the Remain-supporting Mirror was editorially against).

No one knows just what the future holds, but it would not be a total surprise were Reach somehow able to locate a more comfortable equilibrium between its print and digital assets. Strip out that impairment charge and it did make an adjusted operating profit of £66.5 million, up 6.2 per cent, in that first half. Its declaration that it has a “clear” strategy to “ensure we crystallise the benefits of scale” is one to watch.

Translated, it means Reach has been buying other titles and is now identifying ways to slash its costs. As a result of its £127 million (€144 million) acquisition of the Brexit-backing Express and Star newspapers (which have largely maintained their editorial stance) as well as OK! magazine from Richard Desmond's Northern & Shell group earlier this year, it is seeking to reduce its overheads by as much as £20 million (€22.4 million) by 2020. "Synergy" will undoubtedly prove, as ever, to be a synonym for job losses.

In Ireland, Reach publishes the Irish Daily Mirror, the Sunday Mirror and the lesser-spotted Sunday People, all of which have seen their print circulation decline by double digits year-on-year. It also owns RSVP magazine and the websites dublinlive.ie and rsvplive.ie.

Seeking clearance

But it isn't yet the owner of the Northern & Shell titles – aka the Daily Express, the Sunday Express and the Daily Star Sunday – or OK! magazine in this market. While the deal has been approved by the UK competition authorities, it hasn't yet secured the clearance it needs in the Republic, where the Competition and Consumer Protection Commission (CCPC) has decided to carry out a "phase two" analysis of the transaction.

Here, the deal also notably includes the 50 per cent of Irish Daily Star publisher Independent Star owned by Desmond's company in a long-standing joint venture with Independent News & Media, which operates the title.

The CCPC’s concern apparently relates to the potential for Reach to access “competitively sensitive information” of INM and/or Independent Star.

Reach for the Star, follow all the necessary stages of the media mergers process, is not quite the lyric S Club 7 went for. The rainbow will not be shining over every company in the sector.

But it seems reassuring on some level that Reach – thought last year to have run its roving eye over the Sunday Business Post (which predecessor Trinity Mirror once owned) – is prepared to pay some £4.5 million (€5 million) for a 50 per cent stake in Independent Star. Circulation declines notwithstanding, the profitable Irish Daily Star has a neat habit of spinning dividends for its shareholders.