Kicking the Telegraph’s tyres

A typical induction for a new journalist at the Telegraph in recent years included a history lesson on the telegraph pole, the revolutionary piece of communications infrastructure that the paper took its name from when founded in 1855.

The official history says the name “embodied the very latest in electric communications”; in effect its era’s equivalent to names like The Block or Decrypt.

The conservative broadsheet — which American readers may recognise as the workplace of Kate Winslet’s character in Christmas romcom classic The Holiday (2006) — is up for sale, after being seized from the tax-efficient Barclay family by Lloyds Bank. MainFT’s Dan Thomas has the inside story here.

It’s not often newspapers go up for sale, so we thought our readers (particularly the billionaires) might be interested in some of the numbers involved.

(The author was, until August year, employed at the Telegraph, so ethically this is a humble equivalent to Robin waxing about Blömbörg again and again and again.)

The price is Right

In an email to journalists yesterday, Telegraph editor Chris Evans circulated this panel by the paper’s chief cartoonist, Matthew “Matt” Pritchett:

✍️ ‘I hear we’re going to be bought by Prince Harry. He’s always been interested in journalism’

My latest cartoon for tomorrow’s @Telegraph

Buy a print of my cartoons at https://t.co/ILFJjPmckx

Or find the original at https://t.co/bVPAkgE34y pic.twitter.com/X0mSDEb27m

— Matt Cartoons (@MattCartoonist) June 8, 2023

Evans added:

I thought you might all like to see this, depicting you all hard at work . . . I don’t have anything to add to Nick [Hugh, Telegraph Media Group’s chief executive]’s note of yesterday, other than my thanks. Thanks to you all for your good-humoured professionalism. I expected nothing less. As Nick said, there’s every reason to be optimistic, whatever the outcome. The Telegraph is a successful, profitable title.

It’s true — Telegraph Media Group makes money, to the tune of £29.6mn before tax in 2021.

Here’s its profit history, via Enders Analysis:

Staff were told earlier this year that year-on-year revenue growth from 2021 would be the double figures. Alphaville’s back-of-Google-Sheet calculations put subscription revenue growth at a healthy 14.9 per cent for 2022.

The outcome is — stripping away any views one might have about elements of the Telegraph’s editorial output — an apparently solid business. Enders notes that it’s also pretty lean:

[Our] judgment is that the Telegraph does not have much fat to trim: it has no property assets to sell off; its print operations are outsourced; its print and digital advertising sales functions are outsourced; and the level of staff seems about right in relation to other premium titles operating in the UK and in the US.

Valuations are largely landing in the over-half-a-billion-quid area: media analyst Ian Whittaker reckons £500m+ on a valuation of 12.5x adjusted ebitda, Enders says about £452-£586mn, Lex bullishly thinks trophy value could take it the whole yard.

A lot of these estimates are a bit fuzzy because the Telegraph, which for the past two years has published its accounts for the prior year in May, has not done so this year. The CEO has said 2022 will be even better, with Nick Hugh telling a Enders conference just last month . . . 

[Our] ebitda is in the range of £57-60mn — as a percentage that’s a very good margin. That’s important because it helps us reinvest.

Based on Whittaker’s valuation model, that’s around £750mn.

TMG declined to comment on the lack of accounts, or any other questions we asked. A person familiar with TMG told FT Alphaville the accounts are likely to drop before the summer, which going by the astronomical definition is a looming deadline, although to be fair they didn’t specify which summer.

Dommed by subs

It’s well-known that many newspapers have struggled to respond to the structural decline of print and the hugely lucrative advertising it brought. The Telegraph is no exception. After spending much of the ’10s chasing clicks, it pivoted at the end of the decade to pursuing a subscription-driven model similar to that of the New York Times, focused on replacing declining ad revenues through quality content.

This has prompted a major shift: core revenues are now roughly 70 per cent from subscriptions and 30 per cent advertising. In a testament to how advertising has become non-core, TMG outsourced its print advertising to the group that owns the Daily Mail in March 2021.

TMG’s flagship strategy in this is “10-1-23”, aiming for 10mn registrations and 1mn paying subscribers by the end of 2023.

Speaking last month, CEO Hugh was upbeat about this:

The metrics that I look at very regularly are subscription volumes, where we’re just a shade under a million; we’ll definitely hit the million this year.

Really? Really?

TMG pulled out of the UK’s standard Audit Bureau of Circulations figures in early 2019, saying:

. . . the ABC metric is not the key metric behind our subscription strategy and not how we measure our success.

We will be transparent with our core subscriber numbers which are omnichannel and we will communicate these numbers each month. We will share both volumes and average revenue per subscription.

To its great credit, it did so, until it stopped. Subscription numbers were published monthly until last October, with quarterly assurance notes from auditor PwC. Updates then moved quarterly, which in practice meant one more publication, covering December 2022, in January. No new figures have come out since then.

The delay, a person familiar with TMG told FTAV, was because of processing new subscriptions from the Telegraph’s March acquisition of The Chelsea Magazine Company, publisher of “specialist consumer brands including; The English Home, The English Garden, Artists & Illustrators, Classic Boat and Britain”. More on that later. The person added that updated numbers will drop in July.

Our analysis of the figures available shows that subscription growth hit a wall last year, with digital additions no longer able to offset the steady decline of print:

Enders thinks there might be some fudging going on with the headline numbers here:

[W]e suspect that this figure includes some of its novel subscription products, like Puzzles which was launched as a standalone product in August last year

That’s only part of it. While the monthly figures TMG releases have headline digital/print sub numbers, the quarterly PwC-approved quarterly variants comes with caveated notes. Here’s an example from the latest (check out the bit at the bottom):

We found similar such caveats going back as far as June 2021. If these subscriptions (free, or free with a paid subscription) are discounted, the numbers look a fair bit worse:

Free subs haven’t always been disclosed in the audit commentary, but they have been there all along. Here’s an extract from the January 2021 audit:

That cap has seemingly been loosened: free trial subscriptions were nearly 6pc of the total as of last December.

Asked about the discrepancy between paid and free accounts, TMG declined to comment.

So, how does Hugh get his million subs? Back to The Chelsea Magazine company.

In March the Press Gazette reported:

According to ABC The English Home, one of its biggest titles, had an average monthly print circulation in 2022 of 72,494, of which 70 per cent were paid subscriptions. The English Garden had an average circulation of 51,972 — of which 75 per cent were subscriptions.

Here’s the data ABC has published on The Chelsea Magazine’s titles, all of which draw the vast majority of their circulation from subs:

Suddenly, given these gains, 1mn subs looks . . . possible? Hitting seven figures might only require pumping up of the core numbers with freebies and bolt-on extras.

Given 10-1-23 is Hugh’s headline target, it will be interesting to see how he spins this at the end of the year. If he still works at TMG by then.