FT DOT BOMB
Martin Vander Weyer on the woes of
Marjorie Scardino as she contemplates the failure of her website
WHArs a gal to do? For the past four years, Marjorie Scardino, head of the Pearson group, which owns the Financial Times, the Economist and a bundle of other media, educational and dotcom interests, has been the first lady of the Footsie — literally so, as she was the first woman ever to become chief executive of a FTSE-100 company. She has been a corporate star ever since, and only three weeks ago one national newspaper declared that the 54-year-old, bespectacled Texan mother of three was still 'the City's favourite pin-up girl'.
But suddenly — like Anthea and Vanessa in their Big Brother torture chamber — Mrs Scardino is beginning to experience the cruel double-edge of celebrity, from which only a sharp reversal of stock-market fortune can save her. Last week her own newspaper, the usually cautious and well-mannered FT, carried an unprecedentedly frank set of remarks about its own ultimate boss. 'City starts to question its love for Mrs Scardino' was the headline above the byline of James Harding, the paper's respected media correspondent, who went on to observe a fading of 'the "Marj" factor' — a wavering of the positive investor sentiment towards Pearson's shares which has for so long been 'significantly shaped by the City's attitude to Mrs Scardino herself. This was followed up by no less an authority on the stockmarket than the Daib., Mail's Ephraim Hardcastle column. An unnamed `leading media analyst' said: 'Marjorie has made her pile and wants out. . . . I expect her to be asked by President George Bush to join his administration.' Underlying this change of mood is the fact that Pearson's share price has halved from a peak of £23 last March to a low of £11.44, coupled with the news that £81 million of profit from the FT newspaper last year was more than wiped out by the £113 million cost of running the FT.com website. Pearson's total losses on Internet ventures have increased fivefold since 1999, to £196 million, causing its overall group profits to dive. That jarring conjunction of numbers has probably done more to confirm the dissolution of the dotcom mirage than any number of collapsed online yuppie shopping sites. Among British stocks, Pearson was a 'new economy' heavyweight, the thinking man's dotcom: it had content, it had brand names and it had financial muscle; it had a serious, long-term strategy for the new industrial revolution.
And it had Marjorie, who rapidly became the thinking investors' crumpet, the grownups' Martha Lane-Fox. She was followed by City analysts as a true believer in the new media, who spoke of the FT as 'a completely digital product' that could be delivered 'on the Web or on a pink piece of paper. . . . The delivery mechanism is becoming a marketing choice.'
But the case for choosing to spend so much shareholders' money on FT.com remains unproven. Indeed, it is beginning to look like a case-study of dotcom delusion, all the more painful for its promoters because the FT's own Lax column has preached sternly and consistently against the folly of overvaluing Internet shares and business prospects. FT.com has 1.7 million users, but most of them pay only to select material from its archive, rather than for current data — whereas the rival Wall Street Journal site, often quoted as a more successful revenue model in the same field, has 500,000 paying subscribers. FT.com has relied for income predominantly on banner advertising across the top of its pages — but throughout the Internet industry advertisers have begun to question the effectiveness of paying for such space, which users tend to click past in a split-second. And, in any case, many advertisers are (or were) other dotcorns that have now run out of cash.
As for the value of the website in marketing the newspaper itself, Pearson points to a 29 per cent increase in the FT's US circulation last year, to 129,000. But that could have just as much to do with the undoubted strength of the FT's brand name at a time of fast-rising public enthusiasm for investment information, and the effectiveness of its own marketing, including advertisements starring Dan Aykroyd. The truth is that newspapers have, for the time being at least, largely seen off the threat from online alternatives, which often could not afford a comparable depth of content, and failed to attract enough advertising to make themselves viable. Readers have not abandoned the paper habit, and the winners so far are those newspaper groups that have retained circulation while recycling their editorial content through paying websites.
FT.com, with more than 100 journalists of its own, does not fit that description. It now faces a year of cutbacks, which is already causing internal unrest and will no doubt prompt the publication in due course of more in-house criticisms of Mrs Scardino. As the sharply declining US economy not only eats into FT sales growth but also affects Pearson's other US businesses — such as National Computer Systems, which provides courses and tests for schools — things may get a good deal worse before they get better, with trouble looming on several fronts at once. Last week also saw a profits warning and shareprice dive from RTL, the pan-European
broadcasting group into which Pearson sold its television interests last year in return for a 22 per cent stake: problems here include falling growth in German television advertising, and shrinking French radio audiences.
Pearson is still a very long way from the 'heads must roll' syndrome now afflicting the debt-laden British Telecom, but Scardino faces a year in which her pin-up pictures will be widely used as City dartboards. 'It's a sign of the time,' she says, resignedly. 'A year ago the markets were saying "Why aren't you being bolder?" and now they're saying "Why are you spending so much?" It's a fashion thing.'
Mrs Scardino never wanted to be a fashion thing herself. In my one encounter with her, she was businesslike, courteous, delib
erately unglamorous; if I had been asked at a cocktail party to guess her occupation, I might have said business-school professor. When she was about to take over at Pearson in January 1997 (having previously been managing director of the Economist), one interviewer, Judi Bevan of the Sunday Telegraph, found her 'as uncomfortable as a snail without its shell in the glare of publicity', refusing to talk about her family or to be photographed in poses that might make her look unduly feminine.
But the combination of being a woman in a man's world, an American in London and an apostle of the Internet has made her irresistible to the media. When I recently wrote elsewhere about the current British fashion for appointing foreigners to every important management job — whether in football, retailing or running the Dome — I was reminded by the editor concerned to be sure to mention Marjorie, so that they could use a picture of her.
That kind of celebrity, increasingly detached from underlying substance, is always fragile. In a panic-stricken, herddriven stock market, the fans are likely to be both fickle and vindictive. One of the few personal facts elicited about Mrs Scardino in the Bevan interview was that in her teenage years on the Texas-Arkansas border, she rode horses in the local rodeo. That was certainly the sort of training she needed for the rough ride ahead.
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