Real tussle is over control of local web content

By Simon Bond

    Newsquest, the UK media group controlled by USA Today parent Gannett, is the first off the mark in the race to buy Newscom,  the publisher of a string of local newspapers in cities and towns across the southwest of England.
    The bid is hotly contested, with rival local media groups Trinity Mirror and Johnston Press also having thrown their hats--and wallets--into the ring. 
    However, because of the size of their current media holdings, they will have had to sit by while competition regulators assess their takeover ambitions.
      Kim Howells, the UK government minister for consumer and corporate affairs, has referred Trinity and Johnston's proposals for acquiring Newscom to the Competition Commission, which will report its findings on March 13.
    However, the commission's verdict on Newsquest's bid will be delivered five days earlier, on March 8.
     This narrow lead may give Newsquest some first- mover advantage, but the other contenders for Newscom should narrow the gap quickly and the battle will be closely fought.
     The recent pace of merger activity in the sector is a reflection of general concern about shrinking market shares and sustainability of advertising revenues, particularly in the classified market. 
    For all three bidders, there is more at stake than Newscom's portfolio of local papers. Size is becoming the No. 1 issue in the local press. Publishers are grappling with the growth of the internet--a looming threat to their advertising revenues. The recent round of consolidation in the sector is intended to provide the economies of scale that will allow local newspaper titles to ride the "data wave."
     However, the regional publishers could be better positioned than they thought to benefit from the migration of local content to the internet. A study published last month by Jupiter Communications, the global e-commerce research group, predicts a surge in local advertising revenues to $2.7 billion,  or 24 percent of online spending by 2003, a six-fold increase from today's levels. Local newspapers hold the key assets to exploit this growth as producers of local content and owners of strong local brands.
     For smaller groups like Newscom there is little hope of successfully taking on a changing market on their own, and so consolidation of their assets with one of the sector's larger players is a sensible move.
     Johnston is the fourth-largest regional newspaper publisher in the UK and wants to bolster its position with Newscom's titles, which would sit well with those bought from Portsmouth & Sunderland Newspapers in June of last year. 
    The company will also be mindful of its larger rivals gaining an even bigger slice of the pie if it misses out.
    Trinity, the largest of the regional newspaper publishers, is also keen to add to its stable of titles and has the resources to make further acquisitions. The company has one last disposal to make in order to satisfy the regulators over its merger with the Mirror Group. 
     The Belfast Telegraph is expected to net Trinity about $320 million when its is sold this year.
    However, the outcome of this particular tussle is difficult to predict, especially as the details have remained closely guarded.
     Newsquest has refused to reveal the level of its proposed cash bid, and the other bidders says that it is too early to talk about price. 
    But analysts expect a high premium based on recent deals. Last month Daily Mail & General Trust bought Bristol United Press for $195 million,  equivalent to nearly 3.5 times its revenues. A similar calculation for Newscom gives a price tag of around $550 million.
      Newsquest is a prime contender for Newscom, given the strong financial position of its owners, and Gannett has made no secret of its interest in pursuing further acquisitions in the UK. 
     Come March it will have a five day head start over its rivals to realize this ambition.

-Simon Bond covers European media for Media Life, writing from outside of London.