June 21, 2010 8:20 pm

Metro swims against web-migration tide

As newspaper publishers regroup after the worst advertising slump in a generation, most have had to confront a stark truth: the drop in advertising was not only cyclical, but also structural, with future print advertising revenues increasingly undermined by the migration of readers to the web.

Metro, the free newspaper owned by Daily Mail & General Trust, with a distribution of 1.3m copies every weekday, appears to be swimming against the tide.

Available at train stations, tube stops and on buses and trams in 16 urban centres across the UK, Metro made an operating profit even during the worst of the recession in 2009, in spite of a complete dependence on advertising revenues.

Steve Auckland, Metro’s managing director, makes no grand claims for the quality of the paper’s content.

“We’re killing downtime,” he says. “We’re a 20 or 30 minute product and we aim to kill that downtime in an entertaining and informative way.”

That means bite-size news articles, lots of pictures and what Mr Auckland calls “guilty pleasure” stories, focused mainly on celebrities.

Metro has made an operating profit for the past seven years, although DMGT does not break down the newspaper’s individual revenue, so it is difficult to know exactly how well it has performed. Its success relies on its access to a lucrative morning commuter market.

A captive readership, often with little to do on their way to work, commuters are a compelling audience for advertisers, not least because they tend to be employed and therefore have some degree of disposable income.

Metro’s readers also tend to be younger than those of other newspapers, with the average Metro reader just 36 years old compared with 43 at The Sun, and 58 at The Daily Telegraph, according to the National Readership Survey.

The image of a youthful professional, sleepily susceptible to clever marketing in the hours before work begins, may explain why Metro boasted the highest volume of Monday to Friday display advertising of all generalist UK newspapers in May.

According to Nielsen data, Metro had 114,647 single column centimetres (ccms) of display ads, compared with 94,875ccms at The Sun, 77,616ccms at the Daily Mail, and 106,170ccms at The Daily Telegraph.

That high volume of ads also reflects Metro’s willingness to transform itself for the sake of an advertising campaign: often with a wraparound cover devoted to a new product, while certain sections are sponsored by a brand.

Advertisers can even ask the newspaper’s editorial team to help write advertising content, disposing of the traditional division between a newspaper’s commercial and editorial teams.

On the cost side, outsourcing curbs overheads. Printing, distribution and local advertising is outsourced and merchandising is also contracted out.

Other newspaper publishers – especially the hard-hit regional papers – may resent the free sheet for eating into their sales, but Mr Auckland says that many of Metro’s readers would not normally read a paper at all.

“If we stopped tomorrow morning, I don’t think those people would be going out to buy a paper on their commute,” he says. “They’d just look out the window.”

Metro’s model, which DMGT copied from Metro International’s successful free sheet in Sweden, has since been replicated by the Evening Standard, which went free under its new owner, Alexander Lebedev, last year. Its circulation of 250,000 became a distribution of 600,000 and Evgeny Lebedev, chairman, recently told the Financial Times he hoped the paper would break even in 2011.

The closure of DMGT’s London Lite and News International’s thelondonpaper last year led some to argue that the free sheet model was fatally flawed. Both were lossmaking, with thelondonpaper recording a pre-tax loss of £12.9m in the year to June 2008.

However analysts say their closure reflected unique circumstances: a saturated London market (the Evening Standard is now the only London afternoon free sheet), the fact that both were set up in direct competition, and the impact of Rupert Murdoch, owner of News International, deciding to charge for online content.

Yet although Metro has tapped into a fruitful market, there is little hope that the free sheet offers a long-term survival plan for the newspaper industry.

The proliferation of e-reader devices and smartphones will pose a challenge to the newspaper’s dominance as a commuter read, particularly if internet access becomes available on underground trains.

Earlier this year, Metro bid for (and won) the exclusive right to distribute newspapers on the London Underground for the next seven-and-a-half years.

“It’s not easy,” Mr Auckland admits. “Where’s your business going to be in seven-and-a-half years’ time? It’s a difficult call to make. But I do think people will still be reading newspapers.”

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