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FD Interview: Scott Henderson

EXACTLY four years have passed since Financial Director last met up with Scott Henderson at the Financial Times office overlooking the Thames. Henderson, who has since become the publishing group’s chief operating office in addition to his role as CFO, admits it has been a pretty wild time.

“The world is falling apart right now. We had Lehman first and now we have the sovereign debt crisis,” says Henderson.

The economic gloom has business leaders looking at 2012 with some trepidation; directors are changing their strategic thinking and cutting back their workforces but this has been a good time for the FT. According to FT Group’s interim management statement for the first half of 2011, sales are up 6% over the same period last year at £203m and adjusted operating profits are up 3% at £31m.

“Things are turbulent, but in some ways they have really helped increase our relevance,” he says. “The world is in turmoil, but people are beating a path to our door. It’s almost better for business.”

However, the FT has not always had the ability to perform through an economic slump. Back when the FTSE 100 hit rock bottom in 2003, the FT notched up a loss of £32m as advertising revenues plummeted from their 2000 peak.

This new-found resilience is not the result of mere chance. Since 2008, the FT has invested in building its digital business, a strategy vindicated by a leap in digital paid subscribers from 100,000 to 250,000. Henderson is confident that the FT can “double that number again. That is rapid growth; it portends to a bright future.”

To capitalise on the popularity of digital news, it was necessary to overhaul the group’s operating structure. Henderson found himself changing the business model and eliminating silos that had built up during decades as a print publisher.

Henderson remembers a time when everything was in its own department. The organisation of a print publisher was running an increasingly digital business.

“We realised that the digital business had to connect the dots between those departments. There was no natural way for those dots to get connected so we had to force some of that stuff to happen,” he says.

From a finance and not operational background, Henderson says the changes were primarily a financial activity. Having a grasp of where the revenues were coming from – where the old business model was in decline – sat at the nub of the change. It also required a lot of investment in the new business and in unpacking the old one.

“Unpacking a print business that has been in place for decades will not happen smoothly unless you plan it carefully. You have print sites and distribution channels, and they have never come into work wondering how you take those things apart. It is primarily a financial exercise so we don’t slip on that banana skin,” he says.

Digital revolution

Something had to give. A study published by the Organisation for Economic Co-operation and Development (OECD) last year painted a bleak picture of the UK print publishing industry. UK circulation fell by 25% between 2007 and 2009, second only to the US, where the decline was 30%.

However, the combination of print and digital has meant that the FT’s readership figures are actually growing. The FT’s combined paid print and digital circulation reached 597,000 in the fourth quarter of 2010 and Henderson claims the publisher has “more readers than we have ever had”.

Henderson says that he is not fixated on the classic copies-per-day measure of how the business is performing.

“It is almost anachronistic. We look at revenues and profits first. We are indifferent to whether people want to consume it via newspaper or digitally, but it has taken a while for that to sink in,” he says. “The business is better for it: it’s a healthier business, it’s trading better, and it’s got a bright future.”

In 2010, digital services accounted for 40% of FT Group revenues, up from 14% in 2006, while there was strong growth in its digital readership with digital subscriptions up more than 50% to 207,000.

The mobility provided by tablets, the new darlings of digital news consumption, changed access to news and made it more immediate.

“On a tablet, people are consuming it much as they consume a newspaper – it is very tactile. It is easier to roam, easier to find stuff and a more enjoyable user experience,” he says.

Although this is not directly related to finance, Henderson says that FDs need to be plugged in to the latest developments – otherwise, they risk being detached from a burgeoning market.

“There is always the risk that finance becomes a straitjacket. The challenge is to liberate the creative people so you can move in tandem with them,” he says.

Development is viewed differently. Projects used to be spent quarter by quarter; now they are more agile and harder to track. He concedes this can be frustrating for finance, but “you are going to have to go with it” if it is the most effective way of developing the business.

“There are days it is uncomfortable and there are days that you wish you knew the end was in sight, but it is a better reflection of what they are doing on the ground, so we are trying to liberate rather than constrain,” says Henderson.

Behind the veil

Doubling the number of digital readers is all very well but it is a wasted opportunity if they are not paying. Many broadsheet rivals maintain free content on their website, the idea being that this provides more unique page impressions every month. In theory, more users should lead to more advertising revenues. But Henderson doesn’t think this will be the case.

“The ones that don’t charge for their content and sell subscriptions are going to find it difficult to compete for advertising because the information that you need to win advertising campaigns is the information that you gain from subscribers,” he says.

“The risk, of course, is that they wait too long. It is very difficult to catch up; it has taken us four to five years to harness that.”

The FT has devised what Henderson describes as a “frequency model” whereby users receive a number of free articles each month before being asked to pay. Henderson says this strikes the right balance between allowing people to sample the best of the FT and, if they like it, to become a subscriber.

“That balance is important because we need to market our wares, and giving people free access to a number of articles each month is the best possible marketing. It is more effective than to get a mailshot. That has helped reduce our marketing budgets – we get more bang for our buck,” says Henderson.

He terms the FT’s model a success, but there were some failures along the way before finding something that worked. One of the earliest experiments was a concept that a portion of the site was free and a portion of it was behind the veil, which became “completely schizophrenic”.

“That made it difficult for readers to understand what was free and what was paid for. So we scrapped that and came up with the new model. That was easier for everyone to understand, and technologically easier to implement. Behind all of this stuff was the IT team, and you have to resist business models that are too complex to implement from an IT perspective. What we needed was something the IT guys could build and support. It was that fit between commercial, IT and editorial that really worked,” says Henderson. ?

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