The Red Ink at Pearson's Pink Paper


By Stanley Reed Pearson's (PSO) announcement on Nov. 3 that Andrew Gowers, editor of the Financial Times, was stepping down over "strategic differences between himself and Pearson" came as a shock to the FT newsroom. But observers of the company think that Gowers's departure was inevitable.

The pink paper has been bleeding red ink in recent years, losing $62 million in 2003 and $17 million in 2004. Even after a 6% advertising increase for the first three quarters of 2005, the Financial Times was only expected to be "around breakeven" for 2005, Pearson said on Nov. 1.

FLURRY OF MOVES. The newspaper has struggled to maintain its standing as the dominant business paper in the lucrative British market, while also expanding globally into the U.S. and Asia.

Gowers is also said to have been frustrated by frequent changes of direction from management. Staff morale was at a low ebb, insiders said. The appointment of Lionel Barber, the paper's U.S. editor, as Gowers's replacement is widely seen as a good move.

Gowers's abrupt exit may be a sign of a tougher approach at FT's parent company, which has struggled in recent years under its American-born chief executive. Since taking the helm in 1997, Marjorie Scardino has transformed Pearson through a blizzard of acquisitions and disposals. Yet operating results and stock performance have been lackluster.

SOMEWHAT BRIGHTER. Operating profits in 2004 were $410 million on sales of $7 billion. The share price -- 648 pence ($11.43) -- is at almost exactly the same level as when she became CEO nearly nine years ago. Scardino now answers to a new chairman, Glenn Moreno, a former fund-management executive, who replaced Dennis Stevenson in the summer.

This year looks to be better, as sales at Pearson Education, now the real heart of the business, are picking up. On Nov. 1, the company reported that Pearson Education revenues rose 13% for the first three quarters, while overall sales at the company were up 10%. Patrick Wellington, an analyst at Morgan Stanley in London, forecasts a 22% year-over-year increase in pretax profits for 2005, to $757 million, on sales of $7 billion.

Scardino's acquisitions have made the U.S.-based education unit Pearson's largest business, with $4.5 billion in sales last year -- roughly 10 times that of the Financial Times. But the newspaper is still closely watched by the markets. Financial analysts widely consider the FT an underperforming asset, which should be sold. Scardino vows that will never happen on her watch.

TALENT EXODUS. The FT has a powerful brand, but circulation has always been relatively puny compared to other British broadsheets, such as The Times and The Daily Telegraph, the leading "quality" paper, with a circulation of about 850,000. In recent years, the FT has spent heavily to expand outside its home market, building circulation to 122,000 in the U.S. and 35,000 in Asia.

But the paper has not found it easy to retain its British audience while appealing to jet-setting executives. There is widespread grumbling in the City, London's financial center, that the FT is no longer the indispensable business read it once was. One problem: Many senior writers have departed for other publications or accepted buyout packages in recent years.

Average global circulation in April to September fell by 4.76%, to 384,952. Particularly worrying has been the loss of market share to News Corp. (NWS) titan Rupert Murdoch's The Times in Britain.

AILING AND FAILING. For the six months ending in June, the FT's British circulation fell by 1% year-over-year, to 135,500. By contrast, The Times has increased its circulation to 659,963 for September, a 6.3% jump over the previous year.

Adopting a tabloid format has helped The Times. But its editor, Robert Thomson -- a Financial Times veteran who lost out to Gowers for the FT top job in 2001 -- also gets credit for beefing up coverage of business and other areas. As a result, the FT no longer appears to have a lock on British business and financial news -- Scardino & Co. are scrambling to rejuvenate a wasting asset.

Reed is BusinessWeek's London bureau chief


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