Six years ago, Andrew Neil prompted outrage when he proposed a merger of the Edinburgh-based Scotsman with its Glasgow rival, The Herald.

His rationale was that by combining operations such as advertising, printing and back office functions, while maintaining editorial independence, the titles could continue to thrive. Without the merger, he argued, they would wilt under increasing competition, not least from the Scottish editions of UK nationals.

Neil, then running The Scotsman for its owners, the Barclay brothers, was deadly serious and the Barclays came close to persuading The Herald’s then owners, SMG, to sell, but the price and opposition from politicians and journalists — including at least one editor on the Herald titles — put paid to his plans.

Although they were willing to pay a premium, the final asking price was too high for the Barclays, but not for Newsquest, the British arm of the US publishing giant Gannett, which won the auction by paying £216m.

Within a few months, poor advertising returns meant Newsquest had to cut back, setting a budget freeze that foreshadowed at least two rounds of redundancies.

Last week, The Herald again asked for volunteers for redundancy. It said it wants 20 more journalists to go out of a total of 40 job cuts across the company. According to sources at the paper, that would reduce the number of journalists to fewer than 100, two-thirds of the number employed when Newsquest took ownership.

Johnston Press, which bought The Scotsman from the Barclays for £160m in 2005, will update the market this week and the expectation is of another tale of woe. In February, Johnston said that advertising was down 4.2%.

In figures published last week, The Scotsman’s full-rate circulation has fallen to just under 45,000; its overall figure, including bulks, was just over 50,000, while The Herald’s full-rate figure was just under 64,000. Bulks brought its total up to just over 65,000.

Maybe Neil’s merger plan does not look such a bad idea after all. In a documentary on BBC Radio Scotland later this week presented by John McGurk, Neil will suggest parallels with the catastrophic decline of the Clyde shipbuilding industry.

That may be a bit dramatic, but what is clear is that the fall in circulation for Scotland’s quality daily press has been sharp. In January 2005, two years into Newsquest’s ownership, The Herald could boast an average sale of 80,700, while the Scotsman was in the mid 60,000s, so where have all the readers gone?

“Regional titles have been under pressure from a variety of sources, including free titles and online,” said Paul Richards, a media analyst at Numis. “The migration of classified advertising to online has hit them hard for revenue, and although they are trying to compete online, that brings them up against a huge array of competitors for an audience, not least the BBC.”

The Herald division of Newsquest is said to be 18% behind its target for the year and Newsquest has a reputation for setting and maintaining very high targets for operating margins above 30%, which means the owners have to reduce costs in a market where advertising and circulation are under pressure.

Regional titles are suffering across the country. Trinity Mirror, owner of the Daily Record and Sunday Mail, said last week that advertising at its two Scottish titles fell by 5.2% in the first four months of this year, which compares with a decrease of 4.3% across the Trinity Mirror group as a whole.

At The Herald, staff are resigned to another round of cuts. “It is hard to see where the job cuts] will come from because we have been told that key people will not be allowed to leave,” said one insider. “If they do not get enough volunteers then it would mean compulsory pay-off and that could lead to action by staff.”

Johnston’s Scotsman titles have not suffered job cuts, but it carries a heavy debt burden on its balance sheet. Before Johnston took over, the operating margin was around 15% as the owners reinvested in marketing and development, but with shareholders to answer to, Johnston has less room for manoeuvre. Richards points out, however, that the company remains very profitable.

In the last few years, Scottish editions of UK titles have eaten into the daily papers’ circulation. The Times, owned by News International, the parent of The Sunday Times, sells just under 30,000 a day with an edition that extensively covers Scottish news, sport and politics. A £650m investment in three new presses across the UK includes a state-of-the-art facility at Eurocentral capable of full colour. “This investment is not a recent thing for News International” said Steven Walker, NI’s general manager in Scotland.

“This is part of a 25- to 30-year investment. The Sun’s Scottish edition also a sister paper of The Sunday Times] is unquestionably a Scottish title with the added bonus of a big UK operation to call on.”

As a former editor of The Scotsman, John McGurk knows how hard it can be to battle against those competitors and admits he is pessimistic about the outcome.

“If the current rate of decline of about 7%-8% a year continues, then there is a real fear for the future,” he said.

Richards added: “The question for regional titles is whether this is a cyclical problem or a structural one.

“There are structural issues which have to be dealt with, such as the growth of online, but most of the immediate issues are to do with a slowdown in the economy.

“If newspapers are dinosaurs, they are dinosaurs with a very long tail.”

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