Willie O’Reilly: Zero Vat will protect our media, so that our media can protect us

Inflation, recently so absent from the news, is back in the headlines and it’s a shock for those of us with longer memories, who thought it had gone away for good.

Russia’s invasion of Ukraine and the consequent tightening of gas and fuel supplies have been the main causes, while other factors include reduced supply of certain goods and global supply-chain issues as economies recover after the worst of the pandemic.

The average householder is contemplating a winter of more expensive home heating, more expensive transport costs and a galloping rise in food essentials. But our media is feeling the pain too.

Like much of the economy, media has been shielded from inflation for the past decade. Wage rises in the industry have been modest and generally taken place against a background of increasing efficiency.

Commercial rents have been stable for those who were content to remain where they were. Those who moved were taking on extra costs as part of their strategy or downsized to smaller, cheaper sites to avail of savings.

Now everyone involved is facing a new challenge: energy costs. TV, radio, print and online services are all big users of electricity. And there is nothing “marginal” about the current price rises.

The increases from this time last year are in the range that has the chief financial officer losing sleep. From what I am hearing they are approaching 100 per cent. These are not amounts that can easily be absorbed without affecting output.

Broadcast media use a variety of national and sub-national transmission grids. These transmitters need powering on a 24-hour basis. The increases in cost will put pressure on margin and programming budgets.

Whether you are Virgin Media or Radio Kerry, there is no way to pass these costs on to the consumer. TV and radio are free-to-air. This inflation can only be mitigated by cutting into programme budgets or dropping shows for a less expensive schedule. Some increases in advertising charges may help, but won’t cover the full increase.

For the newspaper industry, it is a double whammy. Electricity costs have risen, but so too has the cost of paper. Many publishers are protected in the short term by either stored paper stock or fixed-price contracts. But all of these have a life cycle. When they end they must pay the market rate. And producing paper is an energy-intensive process.

One of the big suppliers to Irish publishers is UPM. This Finnish company has a major paper mill on Scotland’s west coast near Irvine from which we get much of our raw newsprint. It is impressive both in its size and mechanisation. At one end is the raw lumber and at the other, huge rolls of newsprint.

The wood is stripped, pulped and processed in one continuously mechanised process that is just over 0.6 kilometres long. The building that houses it looks for all the world like one of the giant worms from Frank Herbert’s Dune.

It is a huge user of gas-generated electric power. And this, among other things, is pushing up the price of paper.

The Irish Times reported last week that the print costs of the publishers of the Daily Express and The Star have risen by more than 50 per cent. Presumably those of the Irish Times, the Irish Independent and this newspaper are rising by similar amounts.

What newspapers will do is unclear. If they increase the cover price, it will drive down circulation. If they reduce pagination or the quality of the paper, they may damage the quality and heft of the offering.

But price increases of this order cannot be absorbed without a consequent negative effect on print editions. Coming on the tail of ongoing circulation declines, the financial stress is “akin to tasering an elderly person who’s on a pacemaker”, as one newspaper boss commented.

It’s time for the government to live up to its promise made in adopting 19 of the recommendations in the recent report of the Future of Media Commission.

The report recommended that the government reduce or introduce a zero rate of Vat for newspapers and digital publications, contingent on agreement at EU level. In December, EU finance ministers adopted amendments to the EU Vat Directive which allow member states to waive Vat on journalistic publications in a decision that recognised “the vital role of the press in democracies”.

Such a move would bring Ireland into line with many of our European counterparts and would be a real fillip to an industry under existential pressure. Newsbrands, which represents much of the newspaper industry, has asked for this to be a budget item and wants a zero rate of Vat for both printed and digital newspapers.

The time to act on the recommendation is now.