No cost too high, no price too low

Rupert Murdoch's ambition for The Times was to overtake The Telegraph. For The Telegraph, that would be disaster. It is the toughest, most expensive battle in journalism. By Rob Brown

Summer used to be the silly season in the newspaper business, a laidback time of the year when nobody got terribly worked up about anything and those of us not paddling by the seashore were padding out the pages with light-hearted trivia. Even the commercial types used to relax a little until the real circulation battle recommenced in the autumn.

Well, that's how it used to be. But those days, like Fleet Street, are gone. Most national newspapers (including The Independent) are now based in shiny tower blocks in London's Docklands, a controlled environment where the market competition remains totally steady - steadily ferocious.

The battle which The Times is waging against The Daily Telegraph for supremacy in the daily broadsheet market is relentless. It has become so ferocious that the two titles almost ended up in court last week in a squabble with ABC (the Audit Bureau of Circulations) over how their sales figures are calculated and presented to advertisers.

A midsummer courtoom brawl was averted when the Telegraph Group offered up an eleventh hour olive branch, but the hostilities have since intensified. These two upmarket right-wing titles gave editorial prominence over the weekend to a sharp exchange of corporate propaganda about their latest circulation figures. The message from each camp was that they were winning. Both can summon statistics to support such bravado.

Rupert Murdoch long ago announced that his big ambition was to overtake the Telegraph and assume market leadership. When editorial efforts made little impression, News International turned to price cutting. It has cost them tens of millions; The Times's trading losses are gargantuan. The Monday edition of what used to be the "top people's paper" is now virtually a freesheet; since June last year it has been given away for10p. The original pretext for that push, the great 1996 "Summer of Sport" has still not ended at The Times. It shifts over 900,000 copies, enabling it to swell its average daily sale.

That still doesn't put The Times on a par with the Telegraph, but no one can possibly relax in the Isle of Dogs boardroom of the Daily Telegraph, where the official circulation figures for June make for a less than joyful beach read. The Telegraph has kept itself above the psychologically crucial million mark (posting an average daily sale of 1,005,419), but the way in which it has done it could turn out to be commercially catastrophic.

Break down the figures - as ABC (the Audit Bureau of Circulation) has done for the first time - and you find that a full quarter of those sales (275,992) were notched up through discounted subscription schemes. Many such subscribers got the Telegraph - plus its Sunday sister title - for as little as pounds 1 a week.

The Sunday Telegraph's dramatic sales surge in the last year is due almost entirely to this direct subscription scheme, which accounted for more than 30 per cent of its average net circulation last month.

Suddenly we can now see why such a huge hole was blown in the finances of Hollinger International, owner of the Telegraph Group, in its recent annual report. The British newspaper division saw its profits almost wiped out in the last financial year.

The group's operating income plunged from $27m (pounds 16m) in 1995 to a mere $1.6m (pounds 940,000) in the year to end of December 1996. Hollinger had to acknowledge that this profits collapse was due to the $32.3m (pounds 19m) cost of the direct subscription campaign.

Remove this category from the reckoning and you find, even more disconcerting for Conrad Black's bean-counters in Canary Wharf, that the number of copies the Telegraph sold daily at full cover price last month (710,295) was barely ahead of The Times (680,494), whose declared mission since Rupert Murdoch unleashed the price war has been to become the market-leader among British daily broadsheets.

Maintaining its dominance is deemed essential by the management of the Daily Telegraph, a title whose serene success to date has been based largely on its appeal not just to retired colonels in the shires but to many lucrative advertisers.

Recently, the Telegraph posted a billboard directly outside the entrance to NI's Wapping production plant, which proclaimed: "The Daily Telegraph: just where you'd expect it to be. In front of The Times."

But the posters were pulled down when panicked NI executives - anxiously awaiting a site visit from Murdoch - demanded that they be removed by the outdoor contractors.

Although the Telegraph is indisputably out in front, the people pushing The Times claim that the latest ABCs give it valuable ammunition in its dealings with media buyers, who purchase advertising space on behalf of ad agencies and their clients.

"The figures speak for themselves," commented Chris Maybury, managing director of The Times. "The Telegraph has been buying readers at any cost to shore up its circulation. Now that the situation has come to light a number of media buyers will be asking themselves what these readers are worth.

"We say they're not real readers. People may start a subscription with a glad heart, but experience shows that many get the paper shoved through their letter boxes but don't bother to look at it every day. Their engagement with the product is certainly different from those who make a conscious decision to go and buy a copy."

Actually, as Maybury acknowledges, many of those who are subscribing to the Telegraph at a knockdown rate are traditional Telegraph readers who pore over its pages as they always have done. But that, he contends, makes it an even crazier commercial move, for it means the Telegraph is being given away to people who used to pay the full cover price day after day.

"It is mad economics, a prime example of how to turn a good business into a bad one," claims The Times' MD, who questions how many of these subscribers can be weaned back onto paying proper rates.

The Telegraph's management present the story in a different light, naturally. They maintain that this has been money well spent. Hugo Drayton, the group's marketing manager, claims that they are locking in the loyalty of existing readers and helping others to develop the habit of reading the Telegraph.

"All our reader research shows that we have many more regular readers than The Times, whose sales zoom up depending on how much they've slashed the cover price and what giveaways they're trumpeting on the telly," he said.

Drayton claims that the Telegraph has been both cementing the loyalty of its traditional readers and extending its appeal to new ones. "The Telegraph is a very modern newspaper now. The old colonels in the shires are still there on the margins, but they're not core to our being."

Maintaining the paper's commercial position was deemed essential because, as Drayton expresses it, "in this market it seems you really need to be the leader to get much better margins".

He acknowleges that the direct subscriptions drive has been a costly method of maintaining that lead: "No one's denying it's expensive. A lot of money is being spent on the subscription scheme, but its a form of marketing spend that we've decided to go for. Some people are effectively being subsidised but we frankly think it's the right thing to do to protect our franchise over the long term."

So this wonderfully successful scheme is being extended then, is it? "No, there isn't any deal on offer in the market at the moment," replies Drayton. "Obviously there is a finite number of people you can target usefully without oversubsidising to a huge degree. Also, you have to stop occasionally and have a breather".