Peace in our time?

The broadsheet price war may be over, but for the industry there have been no winners, says Ivan Fallon, chief executive of Independent News & Media

Yesterday, The Times raised its price by 5p to 45p. Eight days ago, The Daily Telegraph, the market leader of Britain's broadsheet daily newspapers, also raised its cover price by 5p, to 55p, and The Independent instantly followed. The Guardian kept its counsel but is widely expected to announce a price rise shortly.

In the old days of Fleet Street, this would have been seen as no big deal. Newspapers, like every other product in the world, have been raising their prices for years, usually at around the rate of inflation. There were decades when prices rose roughly in line with that of a Mars bar – the Telegraph, for example, started the post-decimalisation era, in 1971, at 3p and rose in orderly steps to 48p by 1993. The modern measure is the Starbucks index: around the world, the average price of a broadsheet newspaper equals the price of a cup of cappuccino. Ten years ago, that was 50p. Right now, it is £1.50.

But last week's moves were a great deal more significant than any seen for a very long time in this most competitive of industries. For nearly 10 years, the newspaper business has been involved in one of the most protracted and costly price wars of any industry in the history of Britain. Supermarkets and makers of soap powder have price wars, but by the standards of Fleet Street (and I use the term in the very old-fashioned sense of the national newspaper industry) they are mere skirmishes.

In this war, blood flows. It has cost the industry at least £1bn in lost revenue, which can never be recovered. It has turned profitable titles such as the Telegraph, which was forced to compete to protect its top position, into near-profitless concerns. It has ensured that no new national newspaper, certainly at the quality end, will be launched again in this country.

And for what? At the start of the war in 1993, the Telegraph was the best-selling daily at a little more than a million copies a day. The Times, The Independent and The Guardian were all clustered around the 400,000 mark, and making no progress on the leader. Today the Telegraph still sells a million. The Times is a clear second, but its hopes of overtaking the Telegraph have been dashed, at least for a generation, while The Guardian is still more or less where it began the campaign.

The war began so long ago that few managers even remember how it begun. The casus belli was this: News International dominated three of the four market sectors in the British newspaper market. The Sunday Times could boast that its circulation was greater than that of The Observer and The Sunday Telegraph, its two major competitors, combined; The Sun far exceeded The Mirror; the News of the World stood alone at the top of the Sunday popular market. Only The Times was an also-ran.

Rupert Murdoch, in the dozen years he had owned the title, had tried most things: new editors, new promotional campaigns, relaunches, new sections and even new printing presses. The circulation had responded for a while, but it was slow, tough progress and in 1993 The Independent had topped it while the gap with the Telegraph was widening again. It was at that moment that Murdoch, with the same kind of inspiration that had caused him to launch Sky Television against all the odds and market opinion, decided to cut the price of the most upmarket title in the land. His executives were horrified: it wouldn't work, readers would be repelled by this devaluation of their favourite reading, and no new readers would be gained.

Yet for a time Murdoch was proved right. Circulation of The Times soared, from 380,000 to 480,000 and on past the half million to six and even seven hundred thousand. The price fell from 45p in 1992 to 30p in February 1993 and a year later, when the Telegraph at last responded, to 20p. By 1996, the height of the war, you could get a copy of The Times on Monday for a mere 10p. The offerings, particularly in the Saturday market (price: 30p), grew and grew to the point where millions of tons of newsprint were being given away. The Telegraph, which had recently floated on the London Stock Exchange and acquired a market value of some £800m, reacted with a price cut of its own, and its shares dived.

When price cuts were not enough, the big newspaper groups took to discounting, which has reached the stage whereby a subscriber could buy a week's supply of the Telegraph, face value £4.85, for a mere £1.50, all delivered to the home (the cost of that particular exercise is estimated by the trade to be about £40m a year).

The Independent, meanwhile, went through several owners before arriving in the stable hands of its present proprietor, Independent News & Media. By that time its circulation had almost halved and it had gone from making a decent profit to making a loss. An entire industry generating revenues of around £800m a year was profitless – and would remain so for years.

It might have gone on indefinitely but for one new factor: the advertising recession, the worst for the industry in 50 years. In 2001 alone, advertising revenues in the UK dropped by £1bn, with national newspapers, business magazines and television accounting for £965m of it. Advertising fell even more steeply in 2002, with private recruitment advertising, the lifeblood of many publications, diving by an unprecedented 50 per cent. Share prices collapsed, not least that of Murdoch's News Corporation, down by 70 per cent from its peak. Even the deepest of pocket has a bottom and the bottom for many media companies has been plumbed during this long and harshest of downturns.

Last month News International raised the price of The Sunday Times by 20p to £1.40 – a move accompanied by a £2m advertising campaign and two new sections. At the same time The Sun, which had been sold at 10p in the teeth of an ill-judged attack from the Mirror, doubled in price to 20p. The Guardian, which has tried desperately to remain aloof from the price wars, will probably join in over the next few weeks – as will The Observer.

Writing in The Guardian, Roy Greenslade posed the question: "Does this mark the end of the price war? Or just an autumnal truce while the combatants store up enough cash for the next campaign?" I believe the war has ended and that common, or rather commercial, sense has at last prevailed. Greenslade reckons not. Murdoch, he says, "has found the ultimate weapon. He can employ it whenever he needs, when sales slip, when a rival tries that bit too hard to compete, when profits in the rest of his empire look healthy''.

That is not the Murdoch I know. He never had any sentimentality about The Times, or any other of his newspapers (except perhaps for The Sun, which he started in its modern form and which he drove to become an enormous profit-maker). Murdoch wanted The Times to be bigger than the Telegraph because that would mean, for the first time in its 270-year history, it might actually make a profit. Now he knows it can't be done, at least not in his lifetime. And there are so many other pressing issues: DirecTV, television in China and India, BSkyB, movies, the convergence of technologies where he wants to be at the forefront and much else. Murdoch moves on. The price war is history.

That may seem like moderately bad news for the consumer, who has been the sole beneficiary of the flood of newsprint, revamped magazines and extra sections at lower and lower costs. But in the long term it is anything but bad news. No industry can go on subsidising its customer as the newspaper industry has this past decade and stay healthy.