Future of Investigative Journalism: Communications Committee Report

Lord Stoneham of Droxford Excerpts

Wednesday 25th July 2012 Grand Committee

[Lord Stoneham of Droxford]

My Lords, I declare my interests as a member of the News International and Johnston Press pension schemes. I congratulate the noble Lord, Lord Inglewood, and the committee on their report, which is timely and authoritative. I welcome the opportunity for this debate. I also feel honoured to follow the noble Lord, Lord Macdonald. We spent a month together at the London Business School learning about strategic management. The one press story that I remember from the time was the release of Nelson Mandela, so it was a long time ago.

The noble Lord, Lord Inglewood, chairs a local newspaper group, Cumbrian Newspapers, which is highly respected in the industry. It remains under the stewardship of the Burgess family, with its strong commitment to its communities and a long-standing commitment to well resourced journalism. I had the privilege to work for two family-dominated companies. Although one of them is now being treated like Marshal Pétain in France after the Second World War—you cannot find anyone who ever supported him—it is my view that family companies provided an ideal model for ownership of the press. They understood their reciprocal businesses. They respected the need for flair and professionalism in creative businesses. They invested heavily in editorial resources because they believed in strong products above all else. They worried constantly about their business and planned long-term, often for the next generation, and resisted the short-term mentality of the City investors.

Sadly, too few family companies remain, but it is no surprise that the strongest companies in the national newspaper world belonged to the Rothermere and Murdoch families. In the regional press, family companies have disappeared almost totally from the daily market, with the exception of the Burgesses and the Colman and Copemen families in Norwich. Their families are now more involved in weekly newspaper companies, and they may well yet emerge with a stronger future than the daily market for the regional press. That will be surprising, but no surprise to me.

Rupert Murdoch may have no friends currently, but in the past 40 years, in my view, he called all the right strategic shots in the media sector until he underestimated the reputational damage of his executives becoming too headstrong with their excessive power so that they thought that they were untouchable. In the report that we are discussing today, I welcome the commitment to investigative journalism, although we should be as much concerned for those local investigations into council fraud, consumer fraud, criminal activity and standards of care in hospitals and care homes as I would be concerned with the more dramatic national events such as the Watergate-style investigations of MPs expenses and hacking inquiries into the national press.

National press and broadcasters are always better funded than the local press, but the local press touches people’s lives directly. I broadly support what the report says on the need for better regulation and governance in the sector. We need to support sources and whistleblowers and to improve our libel laws if investigative journalism is not to be unnecessarily constrained. It is essential that the reputation of the industry is safeguarded and enhanced. However, I question the report’s recommendation that the Government should recognise the financial problems facing newspapers and should think creatively about tax breaks or other financial incentives that help them through this difficult transitional stage. I cannot believe that the public or a free press would really welcome that.

I am also sceptical as to whether an investment fund for investigative journalism could make a significant impact on funding investigations—there would be huge problems with administering such a fund—although a fund to encourage more training and improve the diversity of journalists has my support. I place more credence on that approach.

I will concentrate in my speech today on two aspects that are important to the future of investigative journalism. One of them the report slightly overlooked; it is mentioned, but I think that it is fundamental to the debate today: the business model and economic viability of newspapers. I will also say a little about the improved regulation of journalistic standards in the light of this. Newspapers are cyclical businesses. They are consumer products, dependent on advertising revenues, which closely follow the progress of the economy, as the noble Lord, Lord Macdonald, was saying. I have never forgotten going down to Portsmouth after that course at the London Business School to run the Portsmouth News Group. As the economy declined in the property-led recession at that time, I lost 50% of my profit in the first six months of my tenure and 50% of what remained in the second six months—a lesson I never forgot. As Tony Pidgley, who runs Berkeley Homes, says—house building is another very cyclical business—you should always make sure that you have enough cash for a disaster that may last for two or three years. In the media sector, it does.

Sadly, in the boom years of the 1990s, and until 2007, many publishers forgot that they were overgeared, overpaid for their purchases and never prepared for the merry-go-round to stop. Two of the four major regional publishers are now mired in debt and pension liabilities that are going to drain those businesses of resources when they most need it.

In the national press, only one quality newspaper is making money. The Telegraph makes between £40 million and £50 million on a turnover of £331 million. The Times is publicly losing £40 million to £60 million—maybe even more if the overheads were allocated differently. We know that the Guardian is losing £40 million, but it is supported by the assets of the Scott Trust. We do not really know about the Independent, but I imagine that its losses are significant. Tabloids are more profitable, given their circulation revenue, but Trinity Mirror has severe problems over its pension liabilities and gearing. Some of this is cyclical, but it is compounded by serious long-term threats to advertising and circulation revenues.

The noble Lord, Lord Macdonald, mentioned that the internet is taking over whole waves of classified advertising, but it is more serious even than he said. In time, no one will advertise second-hand cars in newspapers. Anyone who has used that medium will know that you spend your time ringing up cars’ owners to find that the cars have already been sold. The internet provides a responsive medium that is live, tells you instantly whether the car is available or already sold, and can provide film and information in much more detail than a paper product ever could.

Job advertising is the real measure of whether a monopoly exists. The rate for job advertising is the real measure of market power in a sector. It is the most expensive and profitable source of revenue and it has been dissipated by the cyclical downturn. I used to be responsible for printing the Sunday Times and my weekly nightmare was printing its jobs supplement. It was worth £2 million of revenue and ran to 30 or 40 pages in the boom. If you look at it today, it struggles to get four pages of advertising and is probably worth around £200,000. Most information on jobs is now found via the internet and submitted via the internet. Press advertising will never come back in such volumes as it had in the past.

There have been huge drops in circulation and readership. I was frightened to compare figures this week. The Guardian now sells 180,000 copies and the Independent sells 92,000. The Daily Telegraph sells 520,000 but its sales have halved in a decade. They are frightening figures and this year’s declines are of more than 10% for most of these titles.

Twenty years ago I went to the USA to study the future of newspapers. That was before the internet took off. However, the industry was already eyeing the concept of a convenient tablet. It has taken 18 years to get there, but in the iPad it has found something that has all the qualities of a newspaper but is better. It is portable, it can convey information as never before, it can customise its product and it is immediate, which a newspaper no longer is. To take our own example, although we are not allowed to read newspapers in the Chamber, we all refer to our iPads and smartphones. The problem is that the business model for newspapers through this medium is not yet proven. This is fundamental to the future of investigative journalism.

Advertising alone cannot sustain publishing. It needs a cover price or subscription to balance the product. Although vast investment in the industry has just been made, there are huge savings to be made on printing facilities, paper, transport and retail-wholesale margins if you eliminate the paper product. Stuck in the middle of all this is another key issue: the best websites for news are all currently free.

There are dangers in the Government intervening to subsidise the transition. This is a most difficult phase and it is where we need to concentrate all our creative thinking. The majority of newspaper readers are almost certainly retired. Increased longevity will prolong the life of paper products until those giving up newspapers because they can no longer read them realise that they can increase the print size on a screen and adapt to the electronic medium. That will give them a bit more life. These are the real issues when we look at the problems for investigative journalism and how we finance it.

I will say a little bit about regulation. I strongly support and congratulate the noble Lord, Lord Hunt, on the work he has been doing. I am delighted to see him with us today, although I understand why he is not speaking on this subject. It is fundamentally important. The work of the Press Complaints Commission, particularly on handling complaints and advising the public, is completely underestimated. Most of what we need is in the Editors’ Code of Practice, which has been developed over a number of years.

Of course, the Press Complaints Commission needs wider powers to ensure governance and compliance for the industry. It needs to have greater powers of enforcement and a system of fines. It needs the reality of independence from serving editors while retaining their commitment to the code. But we do not want to overlegalise the system so that it slows up and the costs and complexity become a barrier to the public using it. The case of employment tribunals should be a warning to us all.

However, there are two unresolved problems, and I am not sure that the report that we are discussing today manages to address them. How do you make sure that everyone is included in the proposed contracts we now have before us? It is not just Express Newspapers that is outside; it is all the other growing sources of publications we are going to have over the internet. They need to have some form of financial incentive or disincentive to make sure that they join up and are part of the system. As the noble Lord, Lord Macdonald, so wisely said, as publishing continues to accelerate on the internet, on blogs and social media, how do you ensure fair play with the traditional media and give protection to the public on regulation matters?

There are two great challenges to investigative journalism in the future. How can the business model for publishing respond to the technological and market pressures that in my view are now inevitable and coming much quicker than we think, and which are not transitory or temporary? There will be lower profitability during the transition, but I am not convinced that the state should get involved in subsidising the industry. Improved regulation must not concentrate on simply the traditional publishing model and publications; it has to absorb the new mediums at work if it is to win back public confidence and not further weaken the traditional press.