Independent News & Media eyes digital subscriptions as profits fall 15.4%

Independent News & Media (INM) plans to introduce a subscription model for digital content “in early 2020” as part of a plan to lessen its dependence on declining advertising and print circulation revenues.

Its chief executive Michael Doorly signalled the move after the news publisher released 2018 financial results in which continued falls in advertising and circulation led to a 15.4 per cent drop in its pre-tax profits for 2018.

The group behind the Irish Independent and Sunday Independent news titles also incurred exceptional charges of more than €13 million during the year.

This included a €3.5 million charge for various legal costs resulting from investigations by the Office of the Director of Corporate Enforcement (ODCE) and the Data Protection Commissioner (DPC) and the subsequent appointment of High Court inspectors after an alleged major data breach at the group in 2014.

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Mr Doorly said the cost of these investigations, with which the company is co-operating, would likely be lower than €3.5 million this year. “The company doesn’t believe it is overly exposed to this process,” he said. “It is business as usual.”

He declined to comment on rumours that a European media company may be interested in acquiring the group.

“We hear this speculation and it’s very hard to comment on it because that is all it is,” he said.

Financial picture

INM’s total revenue dropped 2.1 per cent to €191 million, its full-year results show, as advertising business plummeted 8.8 per cent and circulation revenues ended the year 6.3 per cent lower.

A 26.5 per cent surge in revenue in its smaller distribution division, mainly thanks to two acquisitions, was not enough to offset this performance, which included a 1.7 per cent decline in digital advertising revenues and a slight drop in commercial printing business.

CarsIreland.ie was one bright spot, with revenues at the classifieds business rising 18.2 per cent.

INM, which said its pre-tax profit of €24.1 million was ahead of its expectations, signalled the launch of a new business strategy for 2019-2021, which it is calling INM@21.

“It’s not enough to just reduce your cost base as revenues contract. What you have to do is pivot to being a customer-centric, data-driven group,” said Mr Doorly.

This will involve an investment of about €5 million in its technology and digital capabilities the first phase. “Ultimately how much will we spend? We don’t know at this point,” said Mr Doorly.

The INM chief executive signalled it would introduce a digital subscriber model, most likely a “freemium” one where some content remains free, in early 2020.

Before that, readers will increasingly be asked to register when they access content on the site. At the moment, they are only asked to do so for certain opinion articles.

“We can’t just slap up a paywall. We need to be able to understand our audience,” Mr Doorly said.

Key website Independent.ie and the company’s apps will also be refreshed this year.

He added that INM was unlikely to want its titles to feature in Apple News+ when it eventually launches in Europe.

“We’re not at this point looking to bundle with anybody.”

‘Many challenges’

INM chairman Murdoch MacLennan said the group had made “significant progress” over the past year in identifying the key issues it needs to address to stabilise and reposition itself.

“We will continue to confront the many challenges currently dominating our industry’s wide agenda, including the unfettered advance of the global technology platforms such as Google and Facebook, the inexorable rise of fake news and the cold climate for consolidation in the Irish market as a result of inadequacies in the competition approval process, not to mention our outdated libel and legal regime.”

Some €7 million of the group’s net exceptional charges of €13.3 million related to impairment charges on assets in Northern Ireland. It also registered a €4.1 million charge on restructuring costs, mostly related to redundancy schemes.

Operating costs decreased by a net €100,000 in 2018, after a reduction in its cost base was offset by acquisition spending, strategic investment, the implementation of GDPR data regulations and cyber-security costs.

INM said it had reached agreement with the trustees of the Belfast Telegraph Pension Scheme last December on a recovery plan to address its actuarial funding deficit of €25.6 million by 2024.

Ongoing contributions will continue to be made to the scheme to meet the company’s obligations, it said, adding that the agreement would ensure that the scheme is on track to meet members’ needs based on the actuarial valuation as of the end of 2016.

Chief financial officer

The group ended the year with a cash balance of €81.7 million, down €9.8 million on a year earlier. The directors did not propose a dividend for 2018, a year in which earnings per share decreased during the year by 0.2 cent to 1.6 cent.

The company is currently without a chief financial officer, following the departure of Ryan Preston from the role at the end of January by mutual consent. INM said an appointment would be announced “in due course”.

About 35 people are expected to leave the company under its current redundancy scheme, Mr Doorly confirmed. It has no current plans for any reductions in publication frequency or closures of print titles across its portfolio, which includes the Sunday World, the Herald and several regional titles, plus a 50 per cent stake in the Irish Daily Star.

Although consumption is rapidly shifting to mobile, there is “still a huge cohort reading newspapers”, and while group profits are on a falling path, “we still made a profit,” he pointed out.

The INM@21 strategy comes at a time when the news industry is fighting to replace print with digital income in response to a shift in consumer habits.

The company’s digital revenues of €14.8 million - less than 8 per cent of its total revenue - are currently largely derived from advertising, a market that is dominated by Google and Facebook and has proven tough for news publishers.