BBC buys Lonely Planet.... unfair, they cry!

The news that the BBC had bought up Lonely Planet, the famous travel guide publisher, brought out the expected cries of anguish from commercial publishers. The Financial Times asked how a BBC-owned Lonely Planet would make a contribution to "the cultural life of the UK", supposing that to be the remit of the BBC, while the Conservative party reaction was that the BBC was "nationalising" a publisher.

The Lonely Planet purchase may have escaped even louder cries of Unfair! from the private sector because its HQ is in Australia and it was controlled privately by its founders. Competing with Lonely Planet in guides to budget, independent travel are Let's Go, the Harvard-based grandaddy of backpacker advice (founded 1960), the Rough Guides and Time Out.

Low-cost flights have fuelled the demand for guidebooks which tell you where to stay and eat on a budget, although green-aware young people are worrying about the extra low-cost flights and, in some cases, about how the budget guides prevent travellers from contributing much cash to their destinations, often poorer countries.

The deal certainly has tantalising implications for the leisure side of UK media. Lonely Planet was actually bought by BBC Worldwide, a commercial subsidiary of the publicly-funded Corporation. The BBC is paid for by the Television Licence Fee, effectively a form of taxation to support public-service broadcasting; the latest government review means that the Fee will continue until at least 2016, taking the BBC well into the new digital era of broadcasting as a tax-subsidised corporation.

BBC Worldwide had sales of £810m in 2006/07, generating handsome profits of £111m, and there is no doubt that the BBC has benefited from its public television and radio franchise in launching into other media and entertainment markets (video, music, books, magazines etc). The Worldwide arm is believed to have several hundred million Pounds to spend and is likely to focus its investment on digital media, particularly online products. The BBC's main website is already one of the first ports of call for surfing the Web in the UK, with highly rated news and sports pages.

Lonely Planet may have been a pioneer among travellers researching their trips before setting off but independent "reviewing" has flourished, even for package holiday and luxury hotel users. TripAdvisor is the main player but sites like Holidays Uncovered tell you where to go for the best (or worst) karaoke nights and, in one case, which hotel to avoid because of the wild dogs running around the hotel gardens....

Photo source: lvivlviv.com

The price is right: leisure markets and inflation

There has been much debate in 2007 about the need to keep a grip on inflation. Energy prices, in particular, have increased and while the media focus is usually on household bills, higher energy costs have a big impact on leisure industries (the costs, for example, of heating and lighting swimming pools, football stadiums, hotels).

But the big story on prices must still be the extraordinary historic change in the UK economy since the early 1990s: the movement to an economy with seemingly permanent low inflation (i.e. under 5% a year), accompanied by low unemployment and other general indicators of prosperity.

Apart from the economic benefits of low inflation, there are psychological effects. Anyone under the age of 20 can only have been aware, in their lives so far, of living under a Blair-style New Labour government (just as there was a Thatcher Generation), and the memory of a high-inflation economy is a distant one (for the over-30s). But the psychology of pricing is a complex matter and it is human nature to feel that ‘things are getting expensive’, even in an era of low inflation.

To put this in context, a look back at the past is worthwhile.

1960s prosperity and stability: RPI +3.5%

Taking the general, long-running Retail Price Index (RPI) as the measure of inflation, the annual average in the 1960s was +3.5% although the highest rate of the decade was +5.4% in 1969, heralding the decade of oil-price inflation and general economic crisis.

1970s oil crises: RPI +12.6%

Average inflation in the 1970s was +12.6% a year, which seems extraordinary enough to today’s RPI-watchers, but the annual peak for the decade of +24.2% in 1975 alone seems almost bizarre from the standpoint of 2007’s ‘worrying’ increase to over +3%.

1980s recession and Thatcherism: RPI +7.5%

The 1980s had an annual rate of +7.5% although this average was influenced by the +18% rate for the first year of the decade. Thatcherite economics brought the rate down to a low of 3.4% by 1986, at the expense of high unemployment, but the RPI crept up again to reach an unsustainable +9.5% in 1990.

1990s stability under Labour: RPI +3.7%

Apart from 1990, the 1990s were a decade of modest inflation - and economic stability - for which both outgoing Conservative and incoming Labour governments can take some of the credit.

Leisure prices in the 2000s

Inflation has averaged at just over +3% so far in the 2000s (2000-2007) but prices are polarising. The averaged-out RPI (+20% in that period) is now a hotch-potch of varying price trends across sectors of the economy. At one extreme, energy prices for the household were up 73%, whereas clothing and footwear prices actually declined by 17%. (Within clothing, Women's Outerwear is cheaper in 2007 than it was 20 years ago, thanks to globalised sourcing and an ultra-competitive High Street.)

Leisure goods is another official category that has suffered deflation, not inflation, since 2000: a 20% decline in prices averaged across items such as toys and electronic equipment. Leisure services, on the other hand, are 33% more expensive than in 2000. In the leisure market, this means it has become much cheaper to stay home than to go out for leisure activities, exacerbating the underlying social trend towards ‘cocooning’ in the home.

There is no better example of this than the beer market, where the 2000-2007 period saw a 6% decrease in take-home (or ‘off-trade’) prices, whereas a pint in a typical pub or bar costs 24% more. Hence the argument that it is supermarkets, not pubs, that have fuelled binge drinking. The pubs have had to charge higher prices for beer to pay for improvements to their premises, including the provisions for disabled access, stricter health and safety and smoking bans that have affected all leisure premises.

Beer is by no means the only market affected by the in-home option for leisure being cheaper than ‘going out’. Cinema prices have increased steadily – partly to pay for more attractive multiplexes – but there are now so many options for watching a movie cheaply at home (maybe on a home cinema set-up, helping recreate the cinema experience). Eating out is more popular than ever, but the option of entertaining in the home around a table stocked with home-delivered food or supermarket ready-meals is also enticing more consumers, and once again the pricing balance is in favour of the home, with household food prices up 15% since 2000, but restaurant meals up 23%.

Health clubs - how healthy a market?

The health club business would make a good choice for a business-degree thesis on how markets are born, grow and reach maturity. There have been three phases so far:

PHASE ONE: In the beginning was the sweaty urban gym, transformed in the 1990s into a new leisure destination: a hybrid of the local leisure centres and the best of the pumping-iron gyms. City money flooded in as company after company floated on the Stock Exchange, an entirely natural phenomenon because sharply dressed dealers and analysts were among the most to cough up for a subscription to an exclusive health club. (Like so many leisure sectors, private equity has since stepped in at most of the major club companies.)

PHASE TWO: Market maturity came quickly, and by the early 2000s there were plenty of clubs (5,000+, according to the Fitness Industry Association) serving all the UK's cities and large towns. Most were standalone, but hotel clubs and semi-private gyms within leisure centres added to the wide choice. Several UK companies, fearing saturation, started to expand abroad, into Europe, Australia or South Africa.

PHASE THREE: Saturation, consolidation and differentiation are the ugly but inevitable words to describe this market (2005-2008) as it reaches middle age:

Saturation: by 2006, there were too many names competing for the same customers.

Consolidation: late 2006 and early 2007 saw Virgin taking over Holmes Place, Bannatyne buying up the standalone LivingWell clubs and the merger of market leader David Lloyd Leisure with Next Generation. At mid-2007, with the possibility of more mergers still on the cards, the largest companies - all of which have at some point bought up a competitor - were David Lloyd, Fitness First, Virgin Active, LA Fitness, Esporta, Bannatyne and Cannons. They operate some 600 clubs across the UK with just over 2 millon members.

Differentiation: brands can be similar to each other in a growth phase, but now they need to start differentiating themselves. For adults or families (or women only)? Budget or premium? For sports or exercise? "Wellness" or traditional fitness and weight loss?

So, is the market heading for a Phase Four (decline) from the current plateau of Phase Three? Probably not. The enlarged (consolidated) club companies are still full of ideas to attract new customers, recent examples including Family Yoga at LA Fitness, a BUPA health check at Fitness First, evening classes at Esporta or open-air aerobics classes at Virgin Active.

And there is no immediate sign of the prices that clubs can charge falling off, which would be the first sign of market decline. Already, there is a wide choice of price brackets: eight different types of membership by price at Fitness First, for instance.

Underpinning the club market are some solidly favourable trends: the movement away from complicated, time-consuming team sports and towards simple fitness pursuits; the public-private initiatives at fighting obesity; and the way that larger clubs are filling a demand as family-friendly venues for healthy, safe activities under one roof.