There is a rumour doing the rounds in Scotland that Scottish Media Group has resorted to desperate tactics to bolster the circulation of its seven-month-old Sunday Herald – all SMG’s 2,000-plus staff are being told to buy the paper.
The Sunday Herald’s circulation plummeted from its debut 98,738 to 47,070 in June’s Audit Bureau of Circulations figures, and is still short of the title’s “guaranteed” circulation of 50,000.
Callum Spreng, SMG director of corporate affairs, says: “Any new publication takes time to establish its place in the market.”
But the Sunday Herald faces an uphill struggle to lure readers from its nearest rival, Scotsman Publications’ Scotland on Sunday, which was launched over a decade ago, and boasts a circulation of more than 120,000.
Scotsman Publications group advertisement director Stephen Tait says: “The Sunday Herald has lost 52 per cent of its circulation within five months, after a massive promotional spend. How can you set a target as low as 50,000 and miss it?”
Last week, SMG ran advertisements in the trade press trumpeting the Sunday Herald’s five-month average net ABC figure of 57,836, against the 17 per cent circulation decrease experienced by Scotland on Sunday. This figure was calculated by comparing the paper’s July and January circulation figures.
But a year-on-year comparison of Scotland on Sunday’s figures reveals the newspaper has lost only 1.7 per cent of its circulation. Its average net circulation, January to June 1999, is 120,644. June’s circulation was 120,145.
The bitter circulation war is being played out against an exceptional background. SMG is being sized up for a bid by Granada Media Group. In March, Granada bought out Mirror Group’s 18.6 per cent stake in SMG.
Many media specialists question whether there is room for the Sunday Herald in such an overcrowded market. There are at least 12 Sunday newspapers, including English papers such as The Sunday Times and domestic titles.
Ian MacAteer, managing director of Edinburgh agency The Union, says: “There was undoubtedly a gap in SMG’s stable – but was there a gap in the market?”
Giles Brooksbank, managing director of media agency Feathers Brooksbank and chairman of the Scottish Institute of Practitioners in Advertising, adds: “It’s more a question of whether SMG has got deep enough pockets to sustain it [the Sunday Herald]. Can it make a commercial success from a 50,000 circulation?”
Brooksbank says the Sunday Herald has not found a “natural home on the schedule” and admits his agency has not yet placed ads in the title. Faulds media director Sara McLean says her clients “are unconvinced”.
This lukewarm reception among media buyers is reflected in a shortfall in the paper’s advertising target. Spreng claims a current average weekly figure of £55,000 against a target of £60,000 by the end of the year.
Observers claim advertisers in the title’s sister daily, The Herald, are being offered Sunday Herald slots free. They also say the paper lacks local support, a claim which is backed by an abundance of English advertising. There is also concern that a substantial part of the circulation is made up of free copies.
MacLean says: “I think a 50,000 circulation is being generous. It’s nearly impossible to make a newspaper profitable on that figure.”
SMG has responded to the threat of a Granada takeover by embarking on a £300m acquisition spree. This has split opinion over whether it is a defensive measure to block Granada’s purchase or a carefully executed plan to boost share price prior to a sale.
SMG owns Grampian TV, Scottish Television, digital TV channel S2, The Herald, Sunday Herald and Evening Times newspapers, Caledonian magazines and the Pearl & Dean advertising house.
In June, the group acquired outdoor company Primesight for £35m and this month bought 37.4 per cent of Edinburgh football club Heart of Midlothian for £8m.
SMG also plans to boost its 20 per cent stake in GMTV by buying Guardian Media Group’s 15 per cent and possibly Walt Disney’s 15 per cent. Granada and Carlton Communications each hold a 20 per cent stake in GMTV and are unwilling to let SMG gain a controlling stake.
Some observers believe SMG’s move on GMTV is a warning shot to Granada: “Buy us now, or miss your chance.” A more sophisticated version of this view is that SMG is trying to force Granada’s hand ahead of its end-of-year results, which could reveal a lack of profitability in its new businesses.
MacLean says: “It will come round to annual figure time and the truth will be out.”
So far this year, SMG’s frenetic activity has given the company a cash-rich glow and a share price to match.
For the six months to June, the group reported pre-tax profits up two per cent to £24m on an 11 per cent increase on turnover to £111.2m. Start-up costs of £3.4m for the Sunday Herald and S2 channel were shrugged off. It claims the paper will break even in 2002.
TMB MediaCom managing director Euan Jarvie says: “Nobody can run a newspaper just to break even. SMG has 18 months left, maximum. The jury will deliver its verdict soon.”
Deep-pocketed SMG must keep the Sunday Herald in business for the sake of its sale prospects and to avoid an embarrassing climbdown.
In 1993, the group launched the Sunday Standard. The title, which achieved a circulation of 120,000, was pulled after 18 issues, and SMG will not want the Sunday Herald to go the same way. But as Brooksbank says: “If consumers don’t respond to a title, it’s curtains.”
Granada might not be so willing to absorb the losses of a newspaper for a further three years.