Page last updated at 16:02 GMT, Thursday, 25 March 2010

Independent set for radical change under Russian owner

By Richard Anderson
Business reporter, BBC News

Independent newspaper
The Independent has been losing money for years

Russian billionaires don't usually shop at Poundland, but Alexander Lebedev is no ordinary oligarch.

Unlike many of his contemporaries, the former KGB agent, born into a life of privilege and prosperity, prefers to shun the ostentatious trappings of the super-rich.

Instead, Mr Lebedev prefers to indulge what his friends describe as a passion for free speech. Others say he is simply a ruthless businessman with a keen eye for a bargain.

Either way, he bought the Evening Standard newspaper for £1 last year, and has now agreed a deal with Independent News and Media (INM) to buy the Independent and Independent on Sunday.

And the price? One pound - the cost of one copy of the daily newspaper.

Hobson's choice

But whether this actually represents a bargain is a moot point, even bearing in mind the £9.25m INM paid Mr Lebedev to cover future losses.

The two titles "have been running at a loss for a very long time and you could argue that they have never been profitable," says Tim Luckhurst, professor of journalism at the University of Kent and a former editor of the Scotsman newspaper.

It is not inconceivable that a free Independent could do very well
Tim Luckhurst, Professor of Journalism, University of Kent

In September last year, a spokesman for Denis O'Brien, a major shareholder in INM, estimated the titles had lost the group almost £200m since the mid-1990s.

In fact, the only reason why they have not been closed already, Professor Luckhurst suggests, is because this option is even more costly.

INM has a five-year, £35m contract with Trinity Mirror group to print the papers. Buying out the contract would, he says, cost "slightly more" than continuing to print them.

Falling revenue

The fundamental problem with the Independent and Independent on Sunday is, quite simply, not enough people read them.

A newspaper needs readers to buy papers and attract advertisers. The Indy falls short on both counts.

In January, the daily paper's circulation was 186,000, significantly less than the Guardian's 302,000, the Times' 508,000 and the Telegraph's 691,000.

Alexander Lebedev
Mr Lebedev has already bought the Evening Standard in the UK

The Sunday paper falls equally short.

This historic problem meant the papers were hit particularly hard by the falls in advertising revenue the industry has suffered in recent years.

According to Alfonso Marone, media partner at Value Partners Group, newspaper advertising revenue fell from £4bn to £2.7bn between 2006 and 2009. During the downturn, he says, it fell by 30% to 40%.

Add to this the gradual decline in newspaper readership as more and more customers go online in search of free news, throw in some pretty hefty pension obligations and it's easy to see why buyers have not been queuing up to buy the two papers.

"The Independent is an underperforming asset in an underperforming market," Mr Marone concludes.

Slashing costs

So what can Mr Lebedev do to turn the papers around?

First and foremost, he could invest heavily, something INM was not in a position to do. He could invest to improve the papers' online offerings, to attract more well-known and well-respected columnists, and to bolster marketing and advertising campaigns.

Mr Murdoch is the most famous, but there is not a single serious online media business that is not looking at charging for content [in some form]
George Brock, Professor and head of Journalism, City University London

Indeed the media rumour mill has been working overtime in recent weeks, throwing out names such Jeremy Paxman, presenter of BBC's Newsnight, and Greg Dyke, the former director-general of the BBC, as possible candidates to run the re-launched papers

Second, he could slash the cost of the paper.

All these measures could help to boost circulation, particularly as the other broadsheets could not possibly afford to match big price cuts.

Mr Marone also says the paper would benefit greatly from operating in the same stable as the London Evening Standard. This free title could be used to help entice advertisers, he says, while operating out of the same offices in Kensington, London, would mean sharing resources and reducing costs.

Limited access

But the most intriguing option would be to give both titles away for free.

Professor Luckhurst says this is the way Mr Lebedev would like to go: "To offer Britain's first quality free national newspaper."

Mr Lebedev has already made the Standard freely available, boosting circulation from 250,000 to 600,000 in the process, Professor Luckhurst says.

The Telegraph, 691,000, down 11.8%
The Times, 508,250, down 17.7%
The Guardian, 302,285, down 15.8%
The Independent, 185,815, down 13.8%
Source: ABC. January circulation, year-on-year percentage falls.

And there are precedents for successful free papers, he argues, such as City AM and Metro in England and national titles in Spain.

Sacrifices would have to be made, however. Logistics alone mean that any free national newspaper would only realistically be made available in big cities - rural communities would have to go without.

Indeed Professor Luckhurst suggests the reason a deal has not yet been agreed is due to difficulties in negotiating distribution contracts.

But, he says, "it is not inconceivable that a free Independent could do very well."

Mr Marone agrees, arguing that "there is a market for a free national newspaper".

At a time when newspapers are considering charging for online content, having given it away for free for years, such a move could even be well-timed.

Last year, Rupert Murdoch announced that News Corp, which owns the Times and Sun newspapers, would start charging for online content.

"Mr Murdoch is the most famous, but there is not a single serious online media business that is not looking at charging for content [in some form]," says George Brock, Professor and head of Journalism at City University London.

For those unwilling to pay, a free Independent may seem like a very attractive proposition.

Winning friends

And if doesn't work out? If a free Independent does not become profitable? Then all may not be lost.

Much will depend on Mr Lebedev's championing of the ideals of free speech.

Or perhaps on his desire for power and influence in his adopted home - the direct dial that owning a national newspaper provides to the Establishment.

As Professor Luckhurst says, history is littered with examples of "rich proprietors able to subsidise [a newspaper] to win a seat at the top table."

Just how much Mr Lebedev is willing to spend to gain influence with this elite group is key.

As Professor Brock says: "Even very rich businessmen don't like throwing money away without seeing some kind of return."

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