Brexit Will Boost U.K. Newspapers' Circulation, Underline Their Power, Analyst Says

Sun Brexit headline - Getty H 2016
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"There is a strong argument that the view of the press influenced the outcome of the vote," says Liberum's Ian Whittaker.

Coverage of the Brexit vote and its implications and fallout is likely to provide a near-term boost for U.K. newspaper companies' circulation revenue and underline newspapers' influence given that many big titles supported the British exit from the European Union, a London-based analyst said Tuesday.

According to industry observers, marketers had been holding back advertising ahead of the Brexit vote, and many expect ad revenue, from newspapers to TV, could be hurt by Britain's decision amid fears of a recession. But Liberum Capital analyst Ian Whittaker in a report on Tuesday focused on the possible positive fallout.

"The past months have been tough for the U.K. newspapers as they have suffered from the U.K. ad spend volatility ahead of the Brexit vote," he wrote. "Yet, the Brexit vote should be positive for newspapers: In the short-term, it should help boost circulation revenues given the coverage given to the Brexit vote and its consequences; and in the medium to long-term, the Brexit vote — where most newspapers supported a "leave" vote — will be taken as a demonstration of how much influence newspapers still have, which is a persuasive argument to use with advertisers."

Mentioning that it took him four visits to supermarkets and news kiosks to find a copy of the Financial Times on Saturday, the analyst said that "it is very likely that newspaper circulation revenues have benefited from the coverage of the Brexit vote and the aftermath."

Whtitaker said that circulation makes up 45 percent of total revenue at Trinity Mirror, which publishes more than 150 newspaper titles across the U.K. and Ireland, including the Daily Mirror, and 44 percent of consumer segment revenue at DMGT, which publishes the Daily Mail, the Evening Standard and others. He covers the two stocks and Johnston Press, whose papers include The Scotsman and which gets a third of its revenue from circulation. But Whittaker tells The Hollywood Reporter that the same business logic also applies to the News UK arm of Rupert Murdoch's Ness Corp, which is home to The Sun and The Times.

With News Corp's The Sun and The Sunday Times, the Daily Mail and The Telegraph among the Brexit supporters, the analyst said: "There is a strong argument that the view of the press influenced the outcome of the vote and, in that regard, it might be taken as confirmation that the press still holds influence." After all, readership is roughly double circulation volumes, "so the reach is far greater than mere circulation volumes assume," he added.

Concluded Whittaker: "The result of the Brexit vote is likely to reinforce that perception as well as the view that the press can reach viewers in a way that social media and digital cannot. In that regard, it may persuade advertisers that print has more value than realized, especially given the questions being raised about online media at the moment."

Calling U.K. newspaper groups' valuation "extremely cheap," the analyst said that "even before Friday the U.K. newspapers had been the cheapest media stocks under coverage." Whittaker maintained his "buy" ratings on them.