This appeared to be the view among the senior management at News International. Both Murdoch and Andrew Knight were enthusiastic about an idea that Rees-Mogg and Anatole Kaletsky advocated during 1992. They wanted to replace the existing second section (which had eight pages of business news and four of sport) by a completely tabloid pull-out containing forty-eight pages of business and eight of sport. The intention was to trump the FT (28 per cent of whose readers were already also reading The Times) with a section that would provide yet more detailed analysis of financial sectors. It would also permit The Times to increase its cover price towards the FT’s level. The idea was eventually dropped because the production cost was simply too expensive.7 Instead, from 12 October 1992, sport was moved to the back of the main part of the paper and a new second section was created containing business and arts news, controversially countering the previous assumption that business and sport were the subjects men wanted together on their commute to the office. Opinion was sharply divided over whether this new arrangement made sense but it was, at least, not as costly as the innovation floated by Rees-Mogg and Kaletsky.
What was remarkable was how quickly News International challenged the conventional wisdom (including its own) over price versus quality. Within months of taking seriously a plan that would have once again increased the cover price, Murdoch threw himself behind a radical scheme to slash the cover price of The Times. Certainly, investment had not been shown to improve the paper’s market share. Indeed, despite heavy promotion, its sale had slipped by over 6 per cent in the first six months of 1993 compared to the same period the previous year. Its lead over the Independent, at twenty thousand, was uncomfortably small, especially given the financial constraints and lack of promotion with which the latter paper had been forced to operate during the period. The narrow margin looked particularly alarming when it became evident that the Independent had plans in motion for rejuvenation focused on improving quality over cost. It was gearing up for an autumn relaunch that would bring expansion, new sections and colour to the news pages. The moment, it seemed, had come in which The Times would be comprehensively eclipsed by its newer rival. Such a turn of events would do great psychological damage to The Times’s esteem. What was more, as market analysts could relate, once a newspaper started upon a prolonged downward trajectory, it was very difficult to reverse the trend. Identification as only the fourth best-selling broadsheet (behind the Telegraph, Guardian and Independent) would force down advertising rates, reducing revenue and making investment in the product impossible. The Times had to act fast before it was sucked into this downward spiral. Most analysts and the executive chairman, Andrew Knight, advised investing in the product. Murdoch decided they were wrong.
Like many important decisions, the one to launch the price war came from what appeared at the time to be a throwaway remark. Murdoch was over in Wapping to see what difference a price cut at the Sun was having on sales and bumped into Stothard in a corridor. A brief conversation ensued during which Murdoch proffered the (seemingly) off-the-cuff question, ‘Do you think the Sun’s experiment would work for The Times?’ Stothard had independently come to the view that further cover price increases should be resisted but, given the great expense involved in actually making a cut, he had not seriously considered reversing the trend. Nonetheless, almost without pause to weigh the possibilities, he replied that, yes, he thought a price cut could work.8 It was a bold response. Whether the Sun’s economics also applied to the The Times had never been properly tested. The tabloid market had been in a long period of declining circulation. Although it remained the market leader, the Sun had lost half a million sales in the past five years (1988–93). Yet the paper’s price cut in July 1993 to twenty pence proved an immediate stimulant: its sale soared by 368,000 in the following month. This took its share of the tabloid market above 50 per cent, good news for the Sun and ultimately for the fortunes of News International upon which The Times depended. Yet what appealed to the readers of ‘The Sun Says’ and page three would not necessarily translate to the paper of Bernard Levin and Court & Social. In any case, some argued that it was not so much more readers, but richer readers, that The Times needed.
This was an age-old argument. In a good year, around 70 per cent of The Times’s revenue came from advertising. Thus, halving the cover price would have an effect on less than 9 per cent of the paper’s revenue. The intention certainly appeared explicable enough – to recoup this loss by gaining new readers and thereby a richer market for advertisers to target. However, experience suggested the equation was not so simple. In 1967 The Times had successfully gone in search of new readers but the expense involved in attracting them was greater than the volume of high-quality advertising they brought with them. With costs spiralling out of control, the growth strategy had been abandoned in 1970 and the paper duly contracted, retreating back to serving its core third of a million readers. Unfortunately, that too failed to make the paper profitable. Thus it tried again in 1984, when Portfolio was launched. This time advertising revenue did pick up although because the economy was recovering after a period of deep recession this was to be expected. When, in late 1985, the circulation reached a plateau, many assumed this was the physical limit of the paper’s reach.
A new price cut strategy was predicated upon proving the paper did not have a natural plateau that was less than half of what the Daily Telegraph sold every day. Yet, if the experiences of 1967–70 were not to be repeated, the ‘right sort’ of readers had to be attracted. These were the readers who would be especially appealing to advertisers with expensive products to market. If the price cut only attracted students, manual workers and parsimonious pensioners in genteel retirement in Eastbourne, it would never pay its way. The objective was to attract younger professionals with disposable income. Apart from the fact that advertisers preferred them, there was also a longer-term payback if the strategy made lifelong Times readers out of those who had forty years of newspaper purchasing ahead of them rather than old-age pensioners who had just a few. The problem was that most analysts believed the only people who would respond favourably to a price cut were the very lower income groups that advertisers spurned.
Thus, cutting the price of The Times was a highly risky strategy taken against most of the prevailing wisdom. It would be expensive, especially given the decision that the reduced price would be deducted from the company’s share of each sale, and not by reducing the margins of the wholesaler or retailer (for each forty-five pence proffered at the newsagent the retailer would keep twelve pence and, after the wholesaler had taken his cut, News International received back only twenty-sevnty pence). If the paper cut its price to thirty pence, as was now suggested, News International would receive only around twelve pence per copy. Considering it cost nearer thirteen pence to print each copy, this was arithmetic that could not be profitable without encouraging a giant surge in advertising revenue.
Despite all this, Murdoch gave his blessing. Having narrowly escaped bankruptcy in 1990, News Corp. was back in expansionary mode. The satellite television company Sky had bought out its competition to form British Sky Broadcasting (BSkyB) and appeared to be coming out of its financial difficulties. In August 1993, News International announced that profits had soared, year on year, from £48 to £161 million. This was the moment to risk short-term losses assisting The Times in order to steal a march on the competition. On 2 August, The Times began a trial run of the effect of a price cut by cutting the cover price by fifteen pence to thirty pence to thirty pence in Kent, beyond London’s M25 orbital. In the first three weeks, sales went up by almost 14 per cent. This was the confirmation for which Stothard was looking. The decision was taken to repeat the feat throughout the country.
Thus within days of Stothard’s corridor chat, a great strategic gamble was being swung into action, backed by a strongly supportive Murdoch and his son-in-law, Alasdair MacLeod, who was The Times’s circulation manager and perhaps the single greatest exponent behind the plan. Her
e was an example of where having the backing of a strong and risk-taking proprietor who was prepared to back his instincts with decisive action in the face of hostile conventional wisdom proved beneficial. It allowed a newspaper to pursue a strategy that would probably not have been open to it if it had been run by a conventional company owned by banks or private investment trusts used to managing though the usual risk-analysis assessments. The daring of the approach was shown by the incredulity of the media analysts. When the news broke that The Times was going to cut fifteen pence from its price nationally, the initial industry reaction, as reported by the perceptive Raymond Snoddy in the FT, was that Stothard and Murdoch ‘must have gone mad’.9 Alan Rusbridger, the Guardian’s deputy editor, made clear his paper would not be following suit. ‘Unlike the Sun and The Times,’ Rusbridger sniffed, ‘the Guardian has no problem in attracting readers prepared to pay what they evidently think is a reasonable cover price.’10 The Telegraph was equally snippy, its managing director stating, ‘We think it’s sad to see a British institution in such an undignified state, marketing itself not as a paper of record, not for its wide coverage or fine writing, not even for its integrity but “Buy Me, I’m Cheap”.’11 Some of this was the natural badinage of competitors, but for the most part the tone of dismissive condescension was genuine.
A less sanguine attitude animated the Independent. When the news broke that The Times was dropping its price, the Independent took the controversial step of issuing a front-page condemnation. It accused Murdoch of a ‘cynical’ predatory pricing policy that was deliberately seeking to ‘drive this newspaper, The Independent, and The Independent on Sunday out of business’. ‘Without any new editorial ideas’, the statement continued, ‘and without any belief in The Times as a newspaper, Murdoch has decided to crush his nearest rival with the power of money.’ The Independent, it made clear, would not be prepared to enter this price-cutting war: ‘Unlike the Times, The Independent has to earn its living in the world. Because it has to, it has a genuinely independent liberal voice, something which The Times lost the moment Mr Murdoch became its owner.’12 Three days after The Times’s price cut went nationwide, Newspaper Publishing, the Independent’s owners, delivered a submission to the Office of Fair Trading (OFT) alleging Murdoch was improperly trying to destroy their business by using the profits from other divisions of his empire to give his (loss-making) Times an unfair advantage against its competitors. The assumption was that, once he had achieved his goal of removing the Independent as a competitor, he would then increase the cover price and maximize his profits. This operated against competition law and the ultimate losers would be the newspaper-reading public.
These were strong allegations and difficult to prove. The law defined predatory pricing as the attempt by a company that had a ‘dominant’ position in its market to set its price with the intention of destroying its competition. Yet, not only was The Times’s share of the broadsheet market very much a minority one, even if Murdoch’s other mass-selling tabloids were included in a survey of the total market, the company still had a minority share. Only in satellite broadcasting did Murdoch’s Sky enjoy a dominant position and he maintained that the money to fund The Times’s price cut did not come from that sector of his empire. This was not the only problem facing those trying to use the law to block the price cut. Investigations by the Office of Fair Trading could not be concluded quickly and indeed it was necessary that there should not be a recourse that allowed any company immediately to halt a competitor offering an alternative product more cheaply. The problem for Murdoch’s accusers was that by the time a predatory pricing policy was shown to have succeeded in its aims, it could be too late to do much about it. Since the introduction of the 1980 Competition Act, the OFT had only undertaken seven formal investigations and five times come to the conclusion that no offence existed. There had never previously been a complaint regarding newspaper pricing.
Murdoch found the Independent’s accusations highly hypocritical. ‘I think it’s a bit rich of Andreas Whittam Smith,’ he shot back, ‘particularly when he was only able to launch his paper because of what we did at Wapping. He also closed the Sunday Correspondent and tried to do the same to The Observer.’13 Whittam Smith’s moral high ground had indeed been undermined by his own actions. He had deliberately launched the Independent on Sunday in order to destroy the new Sunday Correspondent, duly forcing it to fold. In trying (and failing) to buy the Observer, he had fuelled speculation that the only reason he wanted to own directly competing Sunday newspapers was in order to strangle the two-hundred-year-old Observer so that his own sickly infant could survive. ‘I wasn’t going to be lectured by them,’ fumed Stothard, accusing Whittam Smith of talking ‘the most sanctimonious nonsense. The only clear, unequivocal case of a paper doing something to close another paper down was the launch of the Independent of Sunday in order to close The Correspondent.’ By contrast, Murdoch had a reputation for investment rather than closure. He had saved Today from the scrapheap and was only eventually persuaded to terminate its life when, having spent millions, it proved impossible to turn around. Indeed, as far as Stothard’s analysis was concerned, the complaints against The Times had come a bit late: ‘the time that we were really predatory pricing was when The Times was racking up massive losses’. Neither Northcliffe, nor the Astors, nor the Thomsons had sold the paper at its true cover price, being prepared instead to subsidize its losses from money they had made elsewhere. ‘Did anybody complain when the owners of The Times were pumping millions of pounds into saving The Times from a fate at the hands of the market?’ asked Stothard rhetorically. On this reading of the evidence, ‘we had been predatory pricing for a hundred years’ without complaint. Stothard suspected that what the critics now ‘objected to was the success of the paper and its attraction to their readers. I found these arguments hypocritical.’14
The thirty-pence Times was launched on 6 September 1993. By the end of the week, sales had gone up by more than a quarter. It was in that same week that Murdoch announced the expansion of BSkyB with an eighteen-channel package that doubled the number of satellite channels available in Britain. He had also acquired the Star TV satellite in Asia which was technically accessible to two-thirds of the continent’s population. To those who had long looked at Murdoch’s rise with feelings of dread, he appeared to be launching assaults on all fronts in a battle for global media domination. One of those particularly horrified that Murdoch appeared to be taking over the world, one satellite dish at a time, was Ann Clwyd, Labour’s heritage spokeswoman, who declared The Times’s decision to cut its price ‘an affront to democracy’ and urged an investigation by the Monopolies Commission to prevent ‘this degree of influence in Britain’s press and broadcasting’. It was not just Labour politicians who were alarmed. Peter Bottomley, the deputy chairman of the Conservative Backbench Media Committee, also expressed concern.15
Where were Murdoch’s guns actually pointing? The Daily Mail and the Daily Express had just increased their cover price when The Times launched its offensive and it was from the mid-market, rather than the broadsheet competition, that the most immediate gains appeared to be made. Murdoch’s initial approach to Paul Dacre the previous year with the offer of The Times editorship certainly suggested that he had his sites on attracting middle-market readers to the more venerable title. Yet it was not just a question of coaxing readers away from other papers. Attracting those who had ceased buying any newspaper was a major contributing factor to The Times’s dramatic rise. The emphasis on investing in the quality of the product had, it seemed, blinded newspaper executives to the price sensitivity of the market. Broadsheet readers were just as keen on saving pennies as tabloid browsers. This explained why The Times was able to stretch its lead over the Independent by 110,000 and by almost 40,000 over the Guardian even though the latter’s circulation statistics remained buoyant. During October, there were 100,000 more copies of national broadsheet newspapers being bought every day than there had been in August. Far
from seeking to wipe out all signs of competition, The Times, it seemed, was helping to grow a market that had appeared in gradual decline. This was a repeat of what the Independent had successfully done upon its launch in 1986.
In the first months, neither the Daily Telegraph, the Guardian nor the FT suffered greatly from the launch of the cut-price Times. The only significant losers were the Independent, which was down 20 per cent, and the mid-market Daily Express, down 9 per cent. The Telegraph’s sales remained surprisingly stable, averaging just over one million.16 The Independent’s attempted fightback in October 1993 with a new-look two sections with colour printing failed to reverse its slide. The price war had come at a moment when the Independent was in crisis, its finances drained by the launch of the Independent on Sunday. Andreas Whittam Smith, who at one stage had been sufficiently confident to muse that the Independent might buy The Times, was forced to go cap in hand to Mirror Group Newspapers. Although he remained editor and chairman of the new board, the paper was independent in name only since its fortunes were now at the mercy of the owners of the Daily Mirror (whose sales were taking a pounding from the cut-price Sun) and backed up by significant shareholdings from El Pais and La Repubblica. It was not the sort of proprietorial commune the Independent’s founders had envisaged. Nonetheless, the new arrangement was a lifeline, bringing the investment the paper need. What it had lost, besides its innocence, was its sense of momentum, a force which only months earlier had looked like elevating it above The Times. In February 1994 the Independent’s sales fell below those of the supposedly niche-market FT. By then it was trailing The Times by 175,000. The tables had been most effectively turned.
The History of the Times Page 59