Lord Hollick eyes the bigger picture

When told of MAI’s planned merger with United News & Media one media analyst’s reaction was: “Some people will do anything to avoid working for Michael Green.”

But if the only reason for the merger is as a defensive measure to avoid falling under the Carlton Communications’ chairman’s spell, the much-heralded era of the UK media giant could be short-lived. To prosper and avoid a foreign predator the two companies have to become more than the sum of their parts.

As far as the City is concerned, the key element of the merger is the quality of management MAI chief executive Lord Hollick will bring to the United Group. “The cross-media benefits of this merger are pretty minimal,” says Jonathan Helliwell, media analyst at James Capel. “The City is interested in the fresh management and the bigger platform Hollick will now get to expand his TV interests.”

At the outset, the merged group will maintain independent operations, still under their respective original managements. Hollick will be chief executive and the present United News & Media chairman, Lord Stevens, will be chairman of the new company. The group’s weak spots will also stay intact. The national newspapers, regionals and advertising periodicals are all either under-performing or part of sectors that are in long-term decline.

“I don’t see any interest as a new media owner in moving into old media,” says Charles Allen, chief executive of rival Granada Television. “They are going in different directions in terms of growth.”

For the City the crucial thing is that Hollick can now build up his TV programming interests. “MAI is number three in a three-horse race in ITV, and has less programming than Pearson which isn’t even a broadcaster,” says Helliwell.

Investment in programming would also fit the expansion models of worldwide media conglomerates. This merger is completely horizontal, while Disney has shown that the big players are moving vertically to consolidate both content (programming) and distribution (broadcasting).

Hollick told the City last week that international development is an area of planned growth. Because of the limiting effects of UK ownership regulations, UK media companies have been unable to create the strong home base needed to expand internationally.

At present, only seven per cent of the merged group’s 1.8bn turnover comes from Europe and the Pacific Rim but the deal creates a bigger base for borrowing to fund acquisitions.

The justification for the Broadcasting Bill foreshadowing this merger was the intention to create media companies with the critical mass to expand internationally. If MAI/United is not to be irrelevant in global terms, that expansion needs to come quickly.

Amid speculation that Carlton will still launch a hostile bid for MAI is a belief, in some circles, that Pearson, with its programming and international links, represents a much better suitor for the newly-merged MAI/United group.

It is because Hollick has only been in television for five years and has come this far that the City believes he could be the man to engineer that growth.

In addition to a stronger financial base for borrowings and acquisitions, Hollick is also interested in the cross-promotional synergy of newspapers and broadcasters.

“One thing I have been impressed by is the brilliant success News International has had in deploying support for its satellite channels,” he said last week. This interest in cross promotion indicates the likely direction MAI’s TV interests are going in.

He sees two models of TV channel on cable and satellite in the future: library channels, showing repeats of a broadcaster’s earlier terrestrial output and themed channels filling a smaller niche in the market. Underlining the point, MAI has interests in two cable channels – Rapture, launching in the spring, and a horse racing channel.

“Thirty million people read our newspapers weekly,” he says. “That will come in very handy. There will be so much clutter in the TV arena in the future that a distinctive brand personality will be vital.”

The Express and its powerful regional titles, including the Yorkshire Post, will come in handy, not only for the promotion of any new cable and satellite channels planned, but also for Channel 5 and the TV regions served by TSMS.

Hollick’s attitude to grwoth within ITV is revealed by his response to suggestions that the merger is merely designed to stop MAI being taken over by Carlton.

He claims Government competition policy and the likely retention of the 25 per cent airtime sales limit on ITV sales houses will stop the formation of ITV mega-companies. In this scenario, Scottish, Yorkshire, HTV or the smaller players may be swallowed up but MAI, Granada and Carlton will continue to circle one another.

One effect of laws keeping national newspaper groups and TV companies separate is the almost total lack of duplication in the two companies’ portfolios. The two Lords are promising to strip out 150m in costs through the merger, but some observers are sceptical.

“It is a fallacy that there are enormous synergies to be made across different media,” says Charles Allen, chief executive of rival Granada Television. “There are savings to be made around the edges but it is flawed thinking to believe that you can crush media together.”

The opportunities to cut costs do indeed look few when it comes to their advertising sales operations, although Hollick told the press that cross-media advertising deals do interest him.

“In the US there have been a number of companies who have brought together broadcasting and newspapers,” he says. “We shall be looking at that, but with an eye to how sensitive this area is to advertisers and agencies. We have to be extremely careful about conditional selling.”

Not least because it would lead to charges of restrictive practice.

The merger of newspaper and television sales teams is unlikely. Express Newspapers does not sell space with United Regional Newspapers, Sky Television does not sell its airtime with News International’s and EMAP doesn’t even sell its own radio airtime yet, let alone sell it in packages with its magazines and regional newspapers.

Agencies are sceptical about the potential for either cross-media deals or conditional selling. “An advertiser which could benefit from a deal across newspapers and television is unlikely to come along very often,” says Marie Oldham, strategic planning director of Leo Burnett.

“You would need an advertiser who wants exactly the same audiences as the newspapers and the television groups provide, who wants them at the same time and in the right regions.”

“Only the big, big multinational brands might be interested in making such deals,” says Bill Jones, deputy chairman of Grey. “Those that always want total coverage, the Coca-Colas and Fords, might do something with the top of a media conglomerate.”

With two sales points like the Express and TSMS, the issue of conditional selling is also unlikely to cause sleepless nights for too many agency chiefs : “I would not be as worried about conditional selling by them as I would be about other groups,” says one senior agency source. “For the simple reason that both sales points at the moment are relatively weak players in the market. It is the stronger ones you would worry about.”

Agencies are welcoming the merger for the simple reason they hope it will guarantee the survival of the Express’ newspapers. “It would be a great shame for the advertiser if there were to be even less choice in the middle market,” says Richard Britton, head of press at CIA Medianetwork.

Most media buyers believe that the right moves are already being made at the Express Group and the inherent strength of the Daily and Sunday Express brands should see them through.

“Both newspapers are eminently saveable propositions,” says Bill Jones. “I have never felt they were as bad as their circulations reflected and that the position was bad because of the strength of the competition not just the weakness of the brand. The Daily Star, however, is closer to being a lost title.”

Like any deal that appears to have been done in a hurry – the new company doesn’t even have a name – defensive reasoning might look to be the overwhelming rationale.

But the fact is MAI couldn’t buy any other newspaper groups to take advantage of the new ownership regulations. United, for its part, couldn’t afford to get into ITV. The deal is simply the logical outcome of the legal changes which are restructuring the UK media market.

If it has a limited impact on advertisers because there is little duplication of functions or brands to be stripped out, that is because the previous legal framework always kept UK media companies in splendid isolation.

For the time being, Lord Stevens and Andrew Cameron are still in charge of Express Newspapers. But it is known that the newspapers’ new senior editorial staff are hopeful that at some not-too-distant point there will be an injection of “dynamic new management” from MAI.