A free-for-all at the station

The next press battle could be fought largely underground, as Rupert Murdoch eyes up the capital's commuters, says Meg Carter

After what was arguably the worst year for newspaper sales in two decades, with sales slumped and a collapse in advertising revenue, talk of an impending newspaper sales war sounds – at best – optimistic. Yet that's just what some are predicting for the coming months with Rupert Murdoch's plans for a 24-hour free newspaper for London and the south east challenging Associated Newspapers' Metro head-on.

The first inkling of imminent hostilities came with the claim last month that Murdoch had offered Railtrack £4m a year for the contract currently held by Associated to distribute Metro at main London railway stations. Associated has contracts with Railtrack and London Underground to distribute its free paper exclusively above and below ground.

Associated's contract with Railtrack, however, expires in March. And rumours of Murdoch's interest in developing a new, free title to challenge both Metro and its paid-for stablemate the Evening Standard were strengthened by the fact that he considered launching an evening title three years ago... but abandoned plans after Associated announced its railway station distribution deal.

Added grist to the rumour mill came from those with longer memories. They pointed to Robert Maxwell's attempt to take on the Evening Standard back in the Eighties with the launch of the ill-fated London Daily News. This cost Maxwell some £50m when Associated aggressively beat off the upstart with the resurrection of the now defunct Evening News.

Typically, neither side is willing to comment on their respective plans. And as usual with talk of possible launches – especially from the Murdoch stable – not all may be quite as it seems.

Metro, which launched three years ago, is a colour daily tabloid running to 32-40 pages a day, with editorial that promises the reader no spin, editorial opinion or political bias, and a mixture of local information with national and international news. Distributed at rail stations in metropolitan areas and on the London Underground, it has an upmarket readership profile and is particularly popular with women for its health and lifestyle coverage.

"Metro in London has, in a relatively short period of time, become a strong brand which people like," says Gary McNish, managing director of the UK's largest regional press sales house Amra, which is owned by Trinity Mirror and represents clients including Midland News Association and Manchester Evening News. "It has stimulated new advertisers into the marketplace and a new young readership – people who would historically not have read a newspaper."

It has also proved you don't cannibalise advertising by launching a free paper in the morning, according to Roy Jeans, chief operating officer of the media consultancy Initiative Media. "It hasn't affected the Daily Mail's newspaper sales or advertising revenue in its south-east heartland," he says.

The decision just over two years ago to roll out Metro into other metropolitan areas was well-received, with local editions faring well against existing, well-established regional paid-for dailies. In fact Metro is acknowledged by many to have generated both new readers and new advertising revenue – two reasons, surely, for Murdoch's interest. Jeans, however, remains unconvinced. "I'm surprised he [Murdoch] thinks there's enough money in it," he observes. "And also because he has long had a lot of respect for Associated. I can't see how the market could support two such papers, and I don't see why Murdoch would want to go for Associated."

Associated's game plan was to achieve sufficient numbers of readers to make it commercially attractive to local advertisers, according to a spokeswoman for the paper. And it has. Editorial in Metro exceeded many people's initial expectations. Current daily circulation is around 820,000, she adds, and National Readership Survey figures show it has an attractive 1.17 million daily readership, of which 64 per cent are upmarket ABC1s, 71 per cent are in work and 74 per cent are aged 15 to 55.

Few, however, believe there is room for a second, similarly-pitched title – especially in the current trading conditions. And that includes insiders at Associated's parent, Daily Mail & General Trust. Peter Williams, the finance director of DMGT, has insisted Associated is committed to renewing its contract with Railtrack – on which, he claimed, Metro has first refusal. "News International will not find it easy to win," he pledged. "The view has always been that there is only room for one of these papers."

Murdoch, of course, is not known for temerity. And apparently he wants a slice of the "new" revenue Metro has successfully generated and a chance to take classified advertising from the Evening Standard, too. He is understood to favour a new, 24-hour, middle-market free newspaper, which would start in London and the south east then roll out into metropolitan areas across the UK – just as Associated has done with Metro – working towards a morning circulation of some 240,000 and a further 400,000 copies sold in the evening.

News Corporation already publishes a similar title, Mx, in Melbourne and is understood to be confident that establishing a London title would cost "a few million pounds" and that facilities to do so are already in place. The major stumbling block, however, remains Metro's deal with Railtrack – which is why Murdoch has reportedly offered the rail operator three times the amount for the new contract that Associated paid last time round.

News of Murdoch's plans comes at a tough time for all newspaper publishers – even the strongly positioned Associated. DMGT recently revealed that its advertising income fell 16 per cent in the two months following the 11 September terrorist attacks, in "extremely difficult" market conditions. Despite this, however, the company remains bullish – predicting that tighter cost controls and falling newsprint costs would help the business over the next year.

Associated undoubtedly has the expertise to make Metro work and, to date, has been willing to invest to support it through its early years and worsening economic conditions. Last November, Metro managing director Mike Anderson spearheaded a campaign to persuade advertisers to book space through the recession. He placed a series of national newspaper ads headlined "Out of sight, out of mind" to urge advertisers not to cut their budgets. The move was well received by advertisers and a number of other media owners.

With Murdoch apparently committed to snatching Metro's distribution contract and Metro enjoying the support of much of the media industry, observers may well get the fight they want. McNish has some reservations about whether the market could support both, but adds: "Murdoch could overcome this by launching a free evening paper, which would be in direct competition with the Evening Standard, causing a real threat to Associated."

But then again, maybe other titles have more to fear. When Murdoch was equipping Wapping, he spun a yarn about plans for an Evening Standard rival, the London Evening Post. Jeans points out: "It turned out to be a smoke screen to mask the move of his national newspaper titles to Wapping. Murdoch doesn't tend to announce things, he just does them. My question would be what else could he be planning now? Another national, paid-for daily, perhaps?"