In this week’s Commercial Awareness update, we discuss the Daily Telegraph, freedom of the press, RBS’s tricky quarter, Amazon’s delivery costs, Microsoft’s web services and QuickQuid to close.
The Telegraph going up for sale
The owners of the telegraph have put the daily newspaper and the Sunday version up for a sale, after profits dropped 94% in the last financial year. Telegraph Media Group has been owned by two billionaire brothers, Sir Frederick and Sir David Barclay, since 2004, but now they are reviewing their business interests. With print journalism declining in recent years, the average circulation of the Daily Telegraph has dropped from around 1 million copies a day in the year 2000, to 310, 586 a day currently. There are reports that the Barclay brothers have been trying to sell the newspaper for the last year, but despite potential interest from the likes of Amazon’s Jeff Bezos, they have had no luck. The Daily Mail are also rumoured to be interested, which would potentially make sense as they are both politically right leaning publications.
In recent years, print journalism has declined, so their strategy has shifted to building their digital audience. Many mainstream newspapers have recently offered a subscription service to access much of their content online. In the tough climate, there’s been a consolidation of newspaper groups, with some newspapers merging with, or being acquired by a competitor. This way they can share operating costs and become more cost effective.
Freedom of press
In Australia last Monday, a number of major newspapers printed front pages with the text covered up and a top secret sticker in protest against the government’s secrecy laws. The Right to Know group believes the government has passed laws which infringe on openness and make it difficult for journalists to carry out normal work. New laws passed make reporting on certain stories more difficult and means more documents are likely to be stamped as secret. The Australian Federal Police raided news headquarters over stories based on leaked government information. The group is also campaigning for greater protection for whistleblowers.
It’s not just Australia that has come up against opposition when trying to get the balance right between freedom of the press and privacy. In the UK, phone hacking brought this into the public spotlight. The argument usually revolves around whether it was in the public interest, but whether this is the case or not is largely subjective.
Questions to ask yourself... How much should the government legislate the press? What can newspapers offer to stay relevant?
Companies to watch
Amazon also announced quarterly results last week and there were mixed signs for the tech giant. The good news was that sales grew 24% to $70 billion in the three months to September end, but profitability fell by 25%. This was largely due to shipping costs increasing, which equaled around $10 billion last quarter - a year on year increase of 46%. Many commentators suggest their desire to offer widespread one-day delivery is costing Amazon significantly. CEO Jeff Bezos suggests this is the right long term play for the company - offering the best service for customers means they are likely to come back and spend even more with Amazon.
Amazon’s share price dipped 6% on the announcement of their results. More moderate sales predictions for the quarter to December and a slight drop in growth in their web services division have been the main results for this. Amazon Web Services grew by 35% year on year in terms of sales revenue, which sounds strong and it is, but it grew by more in the previous period - something investors have a keen eye on.
Finally, last week Amazon were beaten by rivals for Microsoft for an important Pentagon contract. The Joint Enterprise Defense Infrastructure (JEDI) cloud computing contract is worth $10 billion and many believed Amazon were the front runners. They hold a 48% share of the market, which in total is worth $250 billion.
The government backed, Royal Bank of Scotland has reported a loss in the third quarter as PPI claims and weak performance in its investment banking arm took its toll. The PPI deadline passed in the quarter which cost the company £900 million, and led to a £8 million loss between July and September. In the same quarter last year they reported a profit close to £1 billion. It’s not just PPI payments which hurt the bank - its investment arm, NatWest Markets, also recorded a £193 million loss. This follows a trend amongst investment banks, which are struggling with low interest rates, falls in bond yields and worries about the global economy. As the economy struggles, investors are more likely to put money into ‘safe investments’, which usually aren’t as profitable for the banks.
The government still owns 62% of the bank that turned back into profit last year after losing money since it was bailed out in 2008. The situation still looks healthy for the bank and much of the loss was final PPI payments, but with the worries about Brexit and the economy many will be worried about future profitability of banks.
The biggest payday lender has announced it will be closing due to market conditions and regulatory uncertainty. They follow fellow payday lenders Wonga and The Money Shop who closed down in August 2018 and earlier this year respectively. The government has increased regulation in a clamp down on who these firms can lend money to, and what they’re allowed to charge in interest. This coupled with increases in complaints to the Financial Ombudsman has led to QuickQuid deciding that conditions aren’t conducive for them to continue operating. It’s reported that QuickQuid has up to 10,000 complaints from borrowers, many of which were compensation cases - these customers will struggle to be repaid now the business is due to close down.
Questions to ask yourself... Is accepting higher costs on delivery in return for better service a good move for Amazon? How can RBS and other banks boost profitability? Should the government be restricting the activity of payday lenders?