There was a ghost at Pearson’s banquet last week. As Dame Marjorie Scardino, chief executive of the Financial Times publisher, announced the most impressive set of figures in years, all eyes were swivelling elsewhere. To the spectre of Rupert Murdoch swallowing up the FT’s principal competitor, the Wall Street Journal.
So much so that Scardino felt compelled to use the occasion of the interims to set the record straight about the FT and its publisher. She underlined how “fantastically well” the FT is doing (which it is) and emphasised the value of it being housed in a diversified global conglomerate such as Pearson. Yet her words fell some way short of answering the question that simply will not go away: will Pearson and the FT at some point part company?
Murdoch’s $5bn (£2.5bn) acquisition of Dow Jones, of which the WSJ is the flagship brand, puts this nagging issue into focus as never before.
For the FT’s success as a global brand over the past few years has been predicated not only upon Pearson’s bountiful resources but the relative torpor of its bigger rival under the stewardship of the Bancroft clan. What if the sleeping giant wakes up, under new and more dynamic management? Where will the FT be then? And how rock-solid will be the loyalty of Pearson faced with significant investment in the WSJ from the world’s most feared – and professional – media tycoon?
It is a question which obsesses the City (no doubt sniffing bankers’ fees in another round of global media consolidation), but not the FT’s youthful chief executive, John Ridding. In his opinion, it is somewhat misformulated.
“The competition is not binary any more,” he says. “There has been an explosion of new channels, resulting in a much broader competitive set. In all this, the WSJ has circled its wagons around the US while we are focused globally.”
A wealth of implications lies in these few words. To outward appearances, the FT is very much the challenger brand to the WSJ. The WSJ has a global circulation of about 2.7 million, whereas the FT’s is about 445,000. After a period of relative stagnation, the FT’s online effort – ft.com – has leapt to 97,000 subscribers. But that figure is dwarfed by the 900,000 who subscribe globally to wsj.com. Indeed, the WSJ’s online model is frequently looked on with envy by other newspaper titles scrambling in vain to secure so many paying customers.
In reality, the two titles serve their markets in very different ways. The WSJ may have two international editions, in Europe and Asia, which stretch it across the world but it is far from being a global brand – the mass of its readers and visitors reside in the US.
The FT, by contrast, is quintessentially a global brand which prides itself on catering for a carefully selected affluent niche audience. Whereas the WSJ is America’s second largest national newspaper, the FT is relatively small in circulation terms within its metropolitan market (about 137,000). Ridding enthusiastically points out that, while performance has recently been good in all the FT’s markets, pride of place currently goes to the FT’s US edition, launched only ten years ago.
“It’s now our single biggest edition, pumping out 140,000 copies a day and doing really well on readership figures as well – about 500,000 according to Monroe Mendelsohn figures,” he says.
Ridding is also quick to highlight the 27% growth of the Asian edition during the first half of this year. Not unnaturally, perhaps. It was launched as recently as 2003 in the teeth of the confidence-sapping Sars epidemic and he was in charge of it until being made group chief executive in May 2006. It now has a circulation of about 40,000.
The key to FT growth, insists Ridding, is an intimate understanding of its specialised audience, the so-called “C-suite” of CEOs, COOs, CFOs, CTOs and, of course, CMOs, who have a certain commonality of interests and spending habits worldwide. “Globalisation is a tectonic force,” he says, and the FT must ride upon it. C-suite readers, with their colossal disposable incomes and aspirational tastes, create interesting opportunities for lucrative offshoots – How To Spend It being the most obvious example. But the genuine global positioning does something else as well (and here Ridding implies a major difference with the US-centric WSJ).
It has enabled the FT to build up a useful synergy among advertisers over all its markets: “Two-thirds of our ads now appear in all four editions,” he says. The importance of this trend should not be underestimated. Ridding sees it as a means of bringing on “the next cohort of global players”. The FT has the opportunity to become the chosen carrier not only of ideas but of revenues, as Asian brands begin to carve out a market in Europe and the US.
This belief in servicing a gradual transference of global power is crucial to Ridding’s outlook, and indeed his optimism. That is why he plays down the so-called credit crunch which is currently playing havoc with global equity markets.
“I’m fairly bullish about the global outlook,” he says. “The world has fundamentally changed and a huge amount of commercial and economic activity is now going on outside the US. In fact, 24 of the last 25 biggest deals were done outside the US. The Chinese buying into the Blackstone IPO, or Barclays Bank, would have been unthinkable a couple of years ago. An enormous recapitalisation is going on. And this is one of the reasons we have seen tremendous resilience. We’ve had the spring 2006 wobble, the sub-prime issue, oil prices spilling over $80 (£40) a barrel and still the IMF is upgrading its global growth forecast. I’m not complacent, but we should factor in these new sources of dynamism.”
Another, slightly more pedestrian, reason for his optimism is the intimate relationship between the current mergers and acquisitions boom in the world’s capital markets and a healthy upthrust in FT circulation. At a time when national newspapers are experiencing severe circulation contraction owing to structural change in traditional print media, the FT has been able to plough serenely on. The FT increased its year-on-year circulation to 444,763 copies in June – the only title in the quality sector to do so. Advertising revenue is 5% up and the FT newspaper and website were able to report that profits had doubled to £10m when Pearson announced its halfway figures last week.
All very well perhaps. But is there not a danger that that other enormous change that is going on globally – the structural revolution in media – will seriously endanger the print advertising revenue stream on which the FT has been primarily dependent? “We’re not worried about the explosion of channels,” says Ridding, “as there is a very strong advantage in this world of being a trusted brand.”
Ridding believes the quality of his readership will enable him to go after extra revenue. In common with other newspaper executives, one of his favourite threnodies is that quality information is given away far too cheaply – the “all this for the price of a cappuccino” argument – a situation that has been exacerbated by the “for free” ethos of the internet. But he is also confident that there are ways round this problem. He underlines the fact that the FT’s circulation has firmed 2% in the June Audit Bureau of Circulations figures, despite a 30% price rise to £1.30 a copy (this may also have had something to do with the paper’s recent refresh). He also points out that subscriptions to ft.com were 12% up year on year at 97,000.
Then there are the revenue synergies that are to be had from being online. There is Alphaville, the blog that targets hedge fund and private equity types and the “view from the top” video interviews, which Ridding believes have a particularly critical role to play.
“The important thing with us, so far as digital is concerned, is not to lose focus,” he adds. “We’ve already shown we can move successfully into the online video area, producing 60 videos a month. We get access to people at the very top, such as Dick Parsons at Time Warner and Lloyd Blankfein at Goldman Sachs, which in turn makes it easy to get good sponsorship. Digital is actually a huge opportunity to start carrying the kind of advertisers you normally only find on TV.”
But just how “integrated” is the FT operation? To hear Ridding, you would think seamlessly. “Quality of content was the number one priority, so we couldn’t have a separate team,” he says. “Last year we created a new newsroom with joint reporting [on ft.com as well].We’ve had an integrated advertising department for a long time. Crucially for the [ft.com] site we’ve appointed Ien Cheng as both publisher and managing editor.” Cheng is indeed a rare breed: a man who can write computer code but is also thoroughly versed in editorial culture, having helped Ridding’s 2004 launch of the FT’s Chinese language website, which now has more than 800,000 registered users.
But integration, at the FT as everywhere else, is still work in progress. Streamlining was achieved at the expense of more than 50 “voluntary” redundancies, mostly of production people. Insiders indicate that this has had a lingering impact on morale, and they are sceptical of the Manila production outsourcing experiment, fearing more rationalisation may be on the way.
They also believe senior management has been near-obsessional about getting ft.com right, though the fact that subscriptions were stuck around the 80,000 mark for a long time might explain that obsession. “Senior management talk about most of the investment going online,” says one source, “whereas senior editors are more interested in what’s happening to the paper.” Nevertheless, they seem agreed on one thing: Ridding – a former FT journalist himself – and his London editor Lionel Barber know what they are talking about and are a huge improvement on the Andrew Gowers regime that preceded them.
The real question for tomorrow is: however competent, can Ridding or any other chief executive future-proof the FT against a newly invigorated WSJ under Rupert Murdoch? Andrew Neil – admittedly a hostile observer with intimate NewsCorp connections – believes that Murdoch will “blow the FT out of the water” by challenging its supremacy in Europe. At the moment this is the WSJ’s Achilles’ heel: its circulation there is only 81,500 compared with the FT’s 129,000. But Neil believes that by combining WSJ resources with those of The Times and The Sunday Times, that situation could soon be reversed.
Be that as it may, a perceived weakness of the FT’s business information empire is its lack of a dedicated TV channel. Murdoch has unequivocally stated that building a global business channel for the WSJ will be one of his first priorities. He already has the advantage of owning TV networks with worldwide reach. Moreover, the WSJ has long experience in this area through its collaborative content deal with GE-owned CNBC. It remains a moot point how easily Murdoch will dismantle this deal, with its thicket of regulatory ramifications. But that is not something the FT can afford to be complacent about, as the curiously ramshackle and ill-fated attempt to hatch a pre-emptive counterbid with GE to thwart Murdoch’s Dow Jones takeover demonstrated.
In the end though, as analysts are fond of pointing out, it is a matter of scale. Media is what Murdoch does all the time, on a global scale. For Pearson, the FT – however profitable, dynamic or prestigious – is a minority interest in what is a conglomerate overwhelmingly focused on the education sector. The FT may be a better global brand. But if Murdoch really piles on the pressure, no one – not even Marjorie Scardino – can categorically rule out a sale.