Newspapers: Wily Desmond may be out for now, but he's certainly not down

'Express' owner waits for 'Telegraph' price to fall and plots next move. Tim Luckhurst reports

There was huge relief at The Daily and Sunday Telegraphs and The Spectator when a spokesman for Richard Desmond confirmed that the proprietor of the Express and Star titles would not pursue his bid for the papers. Telegraph journalists, who dread a Desmond takeover more than any other fate, were delighted by what they see as a grave blow to his ambitions. Their celebrations may have been premature.

When Desmond's spokesman said: "We were in the bidding process to buy a business, not a trophy asset," he spoke the whole truth. Richard Desmond has not ruled out re-entering the contest for the Telegraph. He believes that the price has been wildly overinflated, not least because of the Barclay Brothers' determination to avenge the criticism levelled at them in a courtroom in Delaware. Desmond suspects that other bidders, including the Barclays, may revise their assessment of the Telegraph's worth when they have the opportunity to inspect the books in detail.

Until then, there is the small matter of the free paper for London announced by Desmond last year as a putative rival to Associated's Evening Standard and Metro. Despite high-profile publicity, Desmond's new newspaper has not emerged. One editor designate, the former Sun and Mirror man Nick Ferrari, has already come and gone. Ferrari, now the presenter of LBC Radio's breakfast show, said: "I wish them well but I'm not going to be part of it."

So was it all a joke, further evidence that Richard Desmond will go to any lengths to get under the skin of his bitter rivals at Associated Newspapers? Desmond is good at making mischief, but this time the objective is not just to cause pain to a larger, more successful competitor. "This paper will get launched," said one source who has been working on the project. The people Desmond has hired to make it happen lend weight to that bald assertion. Despite the absence of a launch date, Mike Orlov, a former advertising director on the Evening Standard, is still on his payroll. So is Christian Toksvig, the project director poached from the Swedish pioneers of daily urban freesheets. Some media analysts point out that Desmond does not make a habit of paying people he is not going to use.

Launch timing now rests, in part, on a decision by the Office of Fair Trading. Since February 2003 the OFT has been investigating Desmond's complaint that exclusive contracts to distribute Metro in London rail and underground stations place Associated in breach of the Competition Act. Desmond would love to break Associated's Tube monopoly. An OFT ruling in his favour would make that possible. But Desmond cannot assume that he will win. Associated's deal with London Underground is probably cast iron. As for the mainline stations, there are plausible suggestions that Desmond's Express Group was offered the chance to bid for a distribution contract but declined to do so.

A favourable ruling by the OFT would give Desmond access to a cheap and effective distribution chain. Insiders say that he has dismissed the possibility of distributing outside stations. One explained: "That would not appeal to advertisers. The punters would already have a free Metro in their hands. It would make Desmond's paper a second choice."

He will not launch until he has the verdict. But if it goes against him Desmond has alternative schemes for his London title. At a meeting with his executives last week he was adamant that the newspaper will be launched and that it will be free.

That may be the defiance of a would-be media magnate who has seen his dreams turn to ashes. His critics certainly see it that way. They say that Desmond's withdrawal from the race to buy The Daily Telegraph was evidence of weakness. Further, they argue, last month's sale of his Fantasy Publications to Remnant Media was exclusively intended to render Desmond respectable enough to own the conservative broadsheet.

Richard Desmond clearly relishes the influence conveyed by newspaper ownership. But, as yet, there is no evidence that the desire for status has overtaken his business instincts. He has been ruthless in trimming costs, but only the most blinkered of his critics will deny that he understands the market in which he is operating.

If it does happen, Desmond's London newspaper will follow the model he has set with all his existing titles. It will be cheap. There will be none of the highly paid columnists who appear in the Evening Standard. Desmond's preference for celebrity gossip will be mixed with a real commitment to local news. The aim will be a blend of "news you can use" with the frothiest of entertainment. A former newspaper executive, who knows Desmond well, said: "I would be surprised if there were more than six journalists involved. It will be subbed by his battery chickens outside London."

So, Richard Desmond's ambitions to grow as a media magnate are intact. Despising him for the profits he makes from pornography is a matter of taste. Dismissing him as a fool is not plausible. As one Telegraph insider put it: "If Conrad Black had Richard Desmond's instincts for the British newspaper market, we might not be for sale."