Finance

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

It would have been unthinkable to the Fleet Street press barons of yesteryear.

Two British titles with diametrically opposed political stances could soon come become commercial twins if Trinity Mirror Plc, owner of the left-leaning Mirror, takes a stake in the Brexit-supporting Express as part of a deal with Richard Desmond’s Northern & Shell Media Group Ltd.

Trinity Mirror is in talks to take a minority stake in a newly created company that will include some of N&S's assets. Those will include Desmond's tabloid newspapers, according to Bloomberg News.

The fact that this awkward union is even being contemplated shows the difficult decisions traditional media need to make to survive as ad revenue migrates online.

Sinking Feeling
Once Britain's biggest-selling newspaper, the Daily Express now trails the Sun and Mail
Source: ABC
Circulation figures are as of November 2016

It’s not just that circulation has plummeted -- the Daily Express's readership is a tenth of what it was at its zenith. The decline in the U.K. print media's revenue has been precipitous -- falling by about 50 percent between 2007 and 2015 to 4 billion pounds, according to London-based media consultancy Mediatique. Spending has moved to the likes of Google and Facebook, and print’s share of the ad market has dwindled to 16 percent from about 65 percent in 1995.

Diminishing Revenue
Spending on newspaper advertising is tumbling in Britain
Source: Bloomberg Intelligence

Generalist newspapers are grappling for a workable business model as revenue declines. Unlike specialist media, readers expect content to come for free online.

Faced with this, there has been surprisingly little rationalization in the U.K. newspaper industry. The Independent's presses stopped rolling last year, leaving a cut-price offshoot, the i, as its legacy. Other newspapers have responded by cutting costs and crossing their fingers that digital revenue will pick up.

The commercial logic of a joint venture between N&S and the Mirror titles makes sense -- but management would need to be realistic that cultural differences limit the financial benefits. It is easy to imagine combining digital platforms, IT support, ad sales teams and central functions. This could lead to some big savings. But sharing newsgathering, and occupying the same building? Steady on.

Is sinking more capital into print a bad idea? Trinity Mirror investors aren’t balking. The shares barely reacted to the news. Print newspapers do retain loyalty among older readers after all.

The challenge will be in hammering out a price. Trinity Mirror labors under a large pension deficit and will not want to take on much additional borrowing.

Meanwhile, Desmond has reportedly sought 100 million pounds ($121 million) for the Express which, after much cost-cutting, makes a profit. The two sides held talks in 2015, but no agreement was possible.

Desmond has been a canny deal-maker before. In 2014, he agreed to sell broadcaster Channel 5 for more than four times what he paid for it in 2010. Selling a minority stake in his newspapers may not be such a triumph. But a partnership may secure a respectable partial withdrawal from a challenged industry, and lay the foundations for a full exit at a later date.

There appears to be a willing seller, a willing buyer and a need for consolidation. The chances of something happening this time around look high.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net