Johnston Press provided a stark illustration of the turmoil in the media sector today: the regional newspaper group said that advertising income had plunged a massive 36% in the first few months of this year, leading to the 'greatest fall in revenue in its history'. With losses amounting to £429.3m last year (in 2007 it recorded a profit of £124.7m), it's even saying that it may not be able to continue as a going concern for very much longer. So how did this once-thriving company end up like this?
Well, clearly the advertising slump is the biggest factor: revenues were down 17% in the UK and 23% in Ireland last year, and the decline appears to have accelerated in the first quarter of 2009. Since advertising accounts for two-thirds of the group's turnover, it's no wonder it's struggling. The big worry now is its £480m debt pile - it's already scrapped its dividend, but unless it can flog some assets (i.e. some regional titles), it's likely to breach its loan covenants. But even if the banks do give it some breathing space, it will only be a temporary solution. CEO John Fry (along with other regional media execs) is pressing the Government for some state support, though we suspect he shouldn't hold his breath...
But could the board have done more to prevent Johnston Press's slide? In this month's issue, outgoing chairman Roger Parry, who's held the top job at JP for the last eight years, writes exclusively for MT about 'How to be chairman' - i.e. how to manage shareholders, how to work with the CEO, and how to keep the board dynamic. He also talks frankly about why Johnston Press has not coped as well as the other media companies he chairs - admitting that the board spent too much time on tactics, and not enough on strategy. Clearly it's learnt some pretty harsh governance lessons in the last year...
"The media sector is a brutal place at the moment. I'm chairman of three media companies that are regarded as doing well in the circumstances, and one that has suffered from the downturn. I think there are clear lessons.
Johnston Press, where I've been chairman for eight years, had a decade of spectacular success and was feted as the best-run media company. Board meetings focused on delivering operational excellence and driving annual earnings. Dependable performance left us comfortable with taking on a high level of debt. When the recession and Web 2.0 came, we faced dramatic falls of more than 30% in some revenues. We should have spent more time on strategy and less on tactics, and seen that the past is not a good guide to the future. Radical thinking is better. As Andy Grove of Intel said: 'Only the paranoid survive.'
The other boards I'm part of are suitably paranoid and quizzical. They have challenged conventional wisdom and sought innovation. All have operations in the US, which provided early warning signs of dramatic change. A fear for the dangers of the unknown resulted in strong balance-sheets as the credit crunch hit, which has given more flexibility.
Roger Parry is stepping down as chairman of Johnston Press this month after 12 years on the board, eight as chairman. He remains non-executive chairman of three other quoted companies: Future, Mobile Streams and YouGov.
In today's bulletin:
Government stumps up £27m for Jaguar Land Rover
Toyota puts the brakes on pay and production
Roger Parry: Where Johnston Press went wrong
City suffers from Cattles' offal year
Do it right: Seven ways to clinch deals in a downturn