Why Schibsted and Springer are selling newspapers, while Amazon CEO Bezos is buying

This article was originally published as the Keynote Blog at INMA.org. You can find it here:

http://www.inma.org/blogs/keynote/post.cfm/newspaper-clearance-sale-why-schibsted-axel-springer-are-selling-while-jeff-bezos-is-buying#ixzz2j8aP0K8A

By Tor Bøe-Lillegraven

I am becoming quite the Berliner.

Last week, I attended the INMA European News Media Conference, where speakers from around the world discussed successful revenue strategies on the Web, in mobile, and in print.

Highlights included a presentation from digital frontrunner Schibsted, which is embarking on a global investment in advanced data analytics, and a visit to Axel Springer, the largest publisher in Europe, which has seen phenomenal digital growth.

Earlier this month, I had the chance to actually see Axel Springer’s digital innovation in action.

I was Berlin to sit in the jury for the Media Hack Day, a hackathon that brought together 100 creative programmers, designers, tech-savvy journalists, and concept designers from around the world.

Axel Springer hosted the event, and the main prize was a trip to Silicon Valley, where the winners get to visit its “plug & play accelerator.”

The mission was to hack your way into newspaper archives and make the content found relevant in the digital age. The results were amazing. I wrote a piece about the event, which you can find here.

The hackers really opened my eyes to rapid innovation, and got me thinking about the future of legacy publishing companies such as Axel Springer and Schibsted.

This is a most timely topic, as we look back at the last several months, which have seen some major newspaper properties across the globe changing hands.

Three of the transactions are of particular interest:

  1. In late July, German media powerhouse Axel Springer announced it was selling of a slew of newspapers and magazines to focus on its digital business. The sale included prime properties such as Berliner Morgenpost and Hamburger Abendblatt.
  2. The Schibsted Media Group, based in Norway, has enjoyed stunning success in transforming from a newspaper company to a digital frontrunner in online classified ads and services. In September, Schibsted offloaded newspaper properties in the volatile Baltic region. Pundits immediately speculated about whether Schibsted plans to exit the newspaper business entirely by 2017. 
  3. And of course, the news that Amazon CEO Jeff Bezos was getting his own pet newspaper sparked a media frenzy of speculation about his motives. Bezos bought the struggling Washington Post for a cool US$250 million, noting that printed newspapers on actual paper is a luxury item: “It’s sort of like, you know, people still have horses, but it’s not their primary way of commuting to the office.”

Are we seeing the start of a massive newspaper clearance sale? Or are owners just making place for some new inventory? Here are some thoughts on the matter:

1. The Schibsted and Axel Springer sales are simply sound business decisions, part of a long-term strategy to diversify their investment portfolios. But the sales could also signal a gradual shift away from journalism:

Schibsted (disclaimer: I worked at Schibsted from 2000-2010) has owned Eesti Meedia for 15 years, and has, in the opinions of top management, cultivated a financially strong and strategically well-positioned media group in Estonia and the Baltics. In 2012, Eesti Meedia had revenues of €79 million.

But now the time has come to sell it off, a decision, no doubt, sparked in part by the dire outlook for newspaper circulation in Eastern Europe, which was down some -27% between 2008-2012 (against a world average of -2,2 %).

The sale price?

Estonian Media had speculated about a price tag set by Schibsted of between €20 and €456 million, but the final agreement valued Eesti Meedia at approximately €30 million. In the third quarter of this year, Schibsted will see a loss of around €26 million as a result of the transaction.

Schibsted immediately turned its attention elsewhere, acquiring the Swedish personal finance marketplace Compricer.se.

Schibsted will pay in excess of €15 million for Compricer, where operating profit in 2013 is expected to be around €1.5 million. There will be further payments if the performance of Compricer exceeds certain thresholds in 2014 and 2015.

The move is fuelled by the expectation of significant synergies with Schibsted’s existing personal finance operations. The press release notes that Compricer has a nice strategic fit with the fast-growing portfolio of personal finance-oriented online companies in the group.

It also will benefit from becoming part of Schibsted’s network of Swedish online sites, where the online newspaper Aftonbladet.se and the online classifieds site Blocket.se are the largest traffic machines.

For Schibsted, online classified alone generated some 25% of total group revenues in 2012, yielding gross operating margins (EBITDA) of a healthy 30%, compared to 12% for print operations.

This is the company’s future.

The Axel Springer newspaper sale caught the market by surprise, but is reportedly a result of CEO Mathias Döpfner’s strategy of a major corporate restructuring. From the July 25th press release:

“For Axel Springer AG, the transaction is an additional important step in implementing its strategy to become the leading digital media group.”

Germany may not be as hard hit by declining print circulation as some of the Nordic and Eastern European countries, but last year saw the demise of both the Financial Times Deutschland and the Frankfurter Rundschau.

For years, Axel Springer has set the industry standards for operational excellence, and the group is known worldwide for running tight and efficient print operations. But there are limits to how long a newspaper company can sustain profits by reducing operating costs and consolidating operations.

Der Spiegel reports that most of the print publications Axel Springer has sold off are still profitable, but could face the prospect of further erosion of circulation, readership, and ad sales.

With limited prospect for future growth, Axel Springer could be keen to stay ahead of the curve, selling off prime newspaper real estate while it still fetches a good price in the market.

“We can only be pro-active when we’re in good shape,” Axel Springer CEO Döpfner wrote in an internal e-mail to his staff, reprinted in Spiegel Online. “We will remain on track to becoming a leading digital media company.”

Buyers Funke Mediengruppe, Germany’s third largest newspaper and magazine publisher with a total of more than 500 publications in eight countries, will reportedly pay €920 million for its new assets, and Axel Springer will actually be lending it some of that sum.

The official Axel Springer press release also notes that the parties have agreed to form two new joint ventures for advertising marketing of print and digital media products and retail distribution.

Axel Springer has already made great strides in the digital transformation of its business. In the first half of 2013, digital reportedly accounted for roughly 40% of consolidated revenues, while its contribution to consolidated EBITDA rose to about 45%.

As is the case with Schibsted, Axel Springer’s digital transformation could also signal a shift away from journalism: Spiegel reports that in 2012, about two-thirds of Axel Springer’s digital revenues — some €787 million — came from non-media products. The most profitable units include the careers platform Stepstone, the housing portals Immonet and Seloger, and the price comparison portal Idealo.

So in summary, Schibsted and Axel Springer are making some tough business decisions and priorities as they accelerate their transformation into leading digital media companies.

Some see these recent newspaper sales as a move away from traditional print journalism.

I think of the Schibsted and Axel Springer newspaper sales as part of their continuous strategic evolution, which includes a healthy diversification of their business: actively managing a portfolio of investments across sectors and industries should, on average, yield higher returns, but also pose a lower risk than any individual investment found within the portfolio.

Bottom line: Newspaper equities may still be solid, but the wise investor knows not to keep too many eggs in one basket.  

In the meantime, across the Atlantic, one digital entrepreneur is also diversifying his investment portfolio — but moving in quite the opposite direction:

2. The Washington Post purchase is not a pure business decision – but may signal a move towards new ways of valuing journalism.

The irony of an Internet entrepreneur saving a newspaper business that is on death’s door because of the Internet was not lost on media pundits when the news about the Washington Post sale broke in early August.

One important point to keep in mind is that Bezos is buying the newspaper as a personal investment, not via Amazon. No common corporation between Amazon and The Washington Post could mean no corporate synergies.

Still, for better or worse, The Washington Post sorely needs the money after seven long years of declining revenues. But buying a newspaper is a more delicate investment than it might initially seem.

Applying the market-driven business models that made Amazon a success might be just the wrong approach. Making The Washington Post thrive in purely financial terms just might force it to fail in journalistic ones, as the mechanics making a profitable business model are not the same that make excellent journalism happen.

Still, as Forbes magazine notes: Bezos is now completing his transition from Internet brat to a full-fledged media mogul, perhaps aspiring to shadow the likes of William Randolph Hearst and K. Rupert Murdoch, billionaires who have seen owning an influential newspaper (or a dozen) as a shortcut to achieving influence in government affairs.

In some ways, Bezos comes full circle to meet up with the legacies of Axel Springer and Christian Michael Schibsted. But as they may be making a quiet exit from the newspaper business, Bezos is making a noisy entry.

Hack to the Future: Competition opens publishers’ eyes to rapid innovation

Berlin, Germany – Oct, 2013

By Tor-Bøe Lillegraven, VP CCI Business Consulting

Over the weekend, Axel Springer hosted the Media Hack Day, a Hackathon that brought together 100 creative programmers, designers, tech-savvy journalists and concept designers from all over the world.

Their mission: find new ways to reinvent and reengineer newspaper content archives so that their content can become relevant for the content-hungry digital age.

Newspapers have been struggling to do this for more than a decade, so what is new, you may ask? Well, the hackers only had 36 hours to come up with a working prototype of a solution.

Great ideas that newspaper executives spend years talking about, these hacker kids can execute over a weekend.

Together with Anette Novak, CEO, Interactive Institute Swedish ICT, Sweden, and Marc Mesgarzadeh, CTO, Computer Bild Digital GmbH, Germany, I was in the jury responsible for picking the best hack.

Some of the things we saw were just amazing.

The winner was Photostories, a mobile app that brings stories from around the world organized by photos and locations. If a picture captures your attention, you can go to related articles and, when available, read an entire article straight from the application, which had content feeds from The Guardian (main content), AFP, and Axel Springer (additional related content)
- Storyful (geo location content).

The winning team of Robert Mielnik, Lukasz Milewski and Mike Skrabacz had a good idea, great hacking skills, and, most importantly, they were able to put together a working prototype that the jury wanted to get their hands on.

Their prize was a trip to Silicon Valley, where they will hopefully will get the chance to bring Photostories to the market.

Sometimes a picture says more than a thousand words.

Runners-up were:

  • Can I Quote you on that – an app that extracts quotes from news stories and map them to who said them, when they were said and in the context they were said. Potentially a very useful tool for journalists.
  • UZINE, an app that allows users to extract content from the archives of Agence France-Presse (AFP) using simple search words (i.e. Merkel, CDU, NSA) and make a flip-board style magazine presentation of the content. Very cool. A complete list of the projects is available at hackerleague.org.

This blog was also posted on the WAN-IFRA website Monday October 7th. 2013

Check out this video from the event: 

How two small US newspapers found paywall success

Last week, I wrote from Beijing about the New York Times paywall success story: 738,000 new digital-only subscribers is proof that it is possible to get paid for quality content on digital platforms.

I argued that the paywall is really just a side note. The key to the NY Times success story is, and has always been, their strong relationship with the public they serve.

Their key focus areas include mobile, video, social media and expanding their global reach.

Continuous investment in these growth areas over time now enables the NYT to monetize their content and put up a paywall without selling out on core values.

Now, everyone is looking to market leaders such as the NY Times for clues as to how to transform their own newspaper to a digital success.

But if you are, let´s say a medium-sized regional or a small family-owned newspaper, you have to come to terms with the fact that you are not the NY Times, and that you have to find your own recipe for success.

This week, the Poynter Institute for Media, brings us the story of how two small family-owned newspapers in the US found success with a paywall strategy, adding six figures in annual online subscription revenue while losing less than 9 percent of digital advertising. (Disclaimer: This series of Poynter case studies is supported by a grant from the Stibo Foundation, which is the parent company of CCI Europe, where I work.)

The author, Bill Mitchell, notes that the challenge for these papers was simple: they needed some new revenue streams in addition to online advertising. Their story provides us with some powerful insights and perspectives on how smaller news organizations find ways to charge for content online.

The experiences of the Vermont papers make a persuasive case for experimenting with new business models, a process of innovation that, at least in this case, involved minimal risk in pursuit of solid financial return.

Read the full article here:

http://www.poynter.org/latest-news/top-stories/222073/how-two-small-family-owned-newspapers-in-vermont-had-success-with-a-paywall/

Paywall dreamers: You are not the NY Times

 

By Tor-Bøe Lillegraven

I’ve been in Beijing most of August, and the Chinese Internet censorship takes a little getting used to.

I´m not really missing my social media fixes, but I miss some of my favorite news providers, such as The New York Times or Dagbladet In Norway.

Yesterday, I did however get some NY Times news by proxy – I finally got around to update myself on their financial results from Q2 2013:

While advertising and other revenues are down by 5.8 % and 9.7 % respectively, the most notable news was that circulation revenues increased 5.1% – driven by digital subscriptions

From the August 1st press release:

“Paid digital subscriptions across the Company totaled approximately 738,000 at quarter-end, an increase of nearly 40 percent year-over-year from the end of the second quarter of 2012.”

Pundits responded immediately – noting how the New York Times pay wall success-story means that no one ever needs to worry about the future of journalism again.

Now, there is no arguing NYT are doing a great job at expanding their brand beyond the traditional newspaper.

It is understandable that everyone is looking to market leaders such as the NY Times for clues as to how to transform their own newspaper to a digital success.

But please keep in mind:

You are not the New York Times!

 The New York Times is not saving anyone but themselves.

Paywall dreamers should keep in mind that the NYT have been at it for years, learning by trial and error. Their first attempts at closing off online access was no success, closing down in 2007.

My work brings me in contact with newspaper companies all over the world – and these days, it seems there is one question that is on every executive meeting agenda: should we put up a pay wall like the NY Times?

This is probably the wrong question to ask.

The right question to ask is:

What specific growth areas have the NY Times been investing in, that now enables them to monetize their content and put up a paywall without selling out on core values?

Arthur Sulzberger, CEO and chairman of The New York Times Company, revealed the answer during his keynote at DME last year:

–      Mobile offerings

  • NY Times use the mobile platforms to help re-imagine their approach to news, considering phones and tablets as they plan coverage, rather than thinking of them as something that is just somewhere downstream from online.

–      Social media

  • 400+ Times journalists are active on Twitter, with more than 2.5 million fans on the Times Facebook pages.  In a world overflowing with information and opinion of too often questionable value, NYT want to provide context and reliability.

–      Global reach

  • By 2012, 12% of NYT digital subscribers live outside the United States. iPhone traffic comes first- and-foremost from the U.S., but is followed by China, Canada, South Korea and Japan.

–      Video

  • Video is a major growth area in online advertising. The inclusion of video, interactive graphics and other multimedia tools is a critical piece of the re-imagining of newspapers as true multi-platform news organizations serving the needs of an always-on consumer. (Note: New CEO from BBC will help make that happen.)

Here is what Sulzberger had to say about the NYT paywall success:

“We launched the digital subscription effort because we needed to advance our business model in ways that allowed us to maintain our influence on the Web, expand our unique mobile offerings, and protect and grow our advertising business, all the while building a new subscription business.

We knew that readers placed a high value on our journalism, and we anticipated they would respond positively to our digital subscription packages. And we now have incredible data about our audience that we can use to drive the development of new products.

We have started to do this at The Times, and we will never look back. Going forward, our priority is to innovate and experiment, learn more, and continue to change how things are done.

But beyond these business initiatives and technological challenges, we must remember what is at our core.

We’re in the news business and the primary role we play in society is to report the facts and present an accurate view of the world. For this to be possible we must have a trusted relationship with our readers – as well as the people we cover and the society we serve.“

So even if most newspapers are not the New York Times, there is still at least one important lesson to be learnt: 

The key to the NY Times success story is their strong relationship with the public they serve.  The paywall is really just a sidenote.

Sure, the 738,000 new digital-only readers will bring in more money, but much more importantly – they will help the NYT move forward with new digital products and services, building new relationships and cementing old ones.

As Sulzberger said: the future of digital media is not about forcing your audience to choose one platform over another.

So maybe the right question for news publishers to ask is:

Will we better serve our public by putting up a pay wall around our online content?

 

PS: The NY Times has actually been tracking my online readership for more than 15 years. I first became a registered user when I went to college in San Diego in the late 1990s.

PSS: Paywalls are also quite the buzz in Asia, with editors casting an envious eye at media groups who have successfully implemented “paywalls” after years of giving away news for free.

This piece was published here: http://www.gxpress.net/tor-b-e-lillegraven-you-are-not-the-ny-times-cms-2713

What the Orange County Register’s strategy experiment says about the newspaper industry

The news media company doubled the size of its newsroom staff, created a hard paywall, and took a “print-first” strategy. Thoughts on why it might work

August 2, 2013

As head of Business Consulting at CCI Europe, I have been fortunate enough to work with leading media companies across the globe.

And although the specifics of the media market may be very different from, let´s say India to Germany to Brazil to Finland to the US; the basic dynamics remain the same:

Newspapers across the globe are faced with a massive digital transformation that is eroding print readership and transforming traditional business models. 

One CEO recently told me during a private conversation “cost cutting and downsizing has become a basic management skill. It´s something every competent newspaper manager has to be able to do on short notice.”

“But what takes real skill, and true leadership,” he said, “is creating growth by exploring uncharted business territories.”

But what is left to explore? Over the past decade, print newspapers in the western markets pursued online opportunities to make up for lost print revenues.

By 2013, after more than 15 years of exploration, online is no longer uncharted business territory. Most every newspaper has established an online presence, but not everyone have managed to turn online into a profitable business.

But what else can you do?

Well, one California newspaper defies industry wisdom to stay alive – and prosper. 

Last week, the Guardian, considered as one of the most progressive and forward-thinking media brands in the world, brought us the story of a California newspaper that is truly embarking on an unique and daring venture: re-capturing print audiences.

“Orange County Register shocked the crisis-stricken industry with an ambitious experiment. One year later, the paper is celebrating,” the article reads.

What was the experiment?

An “ambitious expansion” of their business by doubling the newsroom staff, erecting a hard paywall to seal itself from the internet, and adapting a “print-first” strategy. Well, actually a“subscribers-first” strategy:

“We need to do right by our existing subscribers,” said the new CEO Kushner. “To tell them that they are paying, but other people don’t need to, is disrespectful. Either you believe your content is valuable and should be paid for, or you don’t.”

I would argues that there is nothing new about this – The OC register is simply recognizing that they need to keep relentless focus on their core business: the print newspaper. From the article:

“The Register, founded in 1905, made a name for championing libertarian values before stumbling through ill-fated digital-led changes from the 1990s. Pagination shriveled and staff were laid off, said Brusic, who has been editor since 2002.

It was an industry-wide response, and readers noticed, Brusic said. “Imagine it’s your daily coffee. Each time you put down your money the cup gets smaller and the brew gets weaker. That’s essentially what’s happened to American newspapers. We took things away from people and at the same time gave content away free on the web. How crazy is that? The industry committed a kind of institutional suicide over time.”

Earlier this year, I had the opportunity to sit down with David Medzerian, a veteran newsroom manager at OC Register. Here is what David had to say about how the Register serves their community by providing quality journalism.

I have also had the opportunity to meet with Ken Brusic several times over the past decade and their “ambitious experiment” comes as no surprise (The OC Register is a long-time CCI client.)

Brusic has always been a true visionary (see this video clip from 2004). Now he is turning his visions into wisdom to turn business around. Recently he spoke at he ASNE annual convention in Washington about re-imagining possibilities.

“It’s working,” Brusic told the Guardian “We believe that this will work.”

It´s common sense, really.

PS: According to the Guardian, The Register’s transformation is creating additional buzz because its owner, Freedom Communications, is about to launch a new paper, the Long Beach Register, and is circling the Los Angeles Times, (another CCI Client)

This blog was published as an article at inna.com. Read more: http://www.inma.org/blogs/ideas/post.cfm/what-the-orange-county-register-s-strategy-experiment-says-about-the-industry#ixzz2dnwlblPQ

Explore and exploit

This dilemma can be framed as one of balancing exploitativeand explorative activities (March 1991):

“The basic problem confronting an organization is to engage in sufficient exploration to ensure it´s current viability and, at the same time, devote enough energy to exploration to ensure its future viability (1991, p. 105).

Exploiting means further honing your practiced skills – how can we do things faster, cheaper and more efficiently? For the newspaper business, exploitation of the current print business is attractive simply because it is an extension of existing competences, technologies and paradigms, with returns that are positive, proximate and predictable. Incrementally improving current operations is also a necessity as print sales decline and profit margins erode away.

Exploration is all about surveying new opportunities, taking risks and building new business. For the newspaper business, exploration entails experimentation with new digital products and services with uncertain, distant and sometimes negative outcomes. One key concern is for example that new digital ventures cannibalize existing print sales further by offering for free the news that you used to pay for reading in the newspaper.

Balancing both exploitative to explorative activities are seen as crucial for firm survival, but competition for attention and resources still means that explicit and implicit choices have to be made between the two, as “exploration of new alternatives reduces the speed with which skills at existing ones are improved” (1991, 72).  This exploit/explore framing has been one of the most enduring ideas in organization literature over the past 20 years, and March´s original article from 1991 has been quoted almost 10 000 times.

More recent research introduces the notion of an ambidextrous organization, with the dynamic capability of simultaneously exploring and exploiting – resulting in “superior performance” (Tushman & O´Reilly 1996; 2002). An attractive concept, the ambidextrous firm is able to compete concurrently in both mature and emerging markets, balancing the following different strategic foci, structures, tasks, competencies, processes, cultures and leadership roles:

 

Alignment of:

Exploitative activities

Exploratory activities

Strategic intent

Cost, profit

Innovation, growth

Critical tasks

Operations, efficiency, incremental innovation

Adaptability, new products, breakthrough innovation

Competencies

Operational

Entrepreneurial

Structure

Formal, mechanistic

Adaptive, loose

Controls, reward

Margins, productivity

Milestones, growth

Culture

Efficiency, low risk, quality, customers

Risk taking, speed, flexibility, experimentation

Leadership role

Authoritative, top down

Visionary, involved

 

But the chart above clearly illustrates the paradoxical nature of “ambidexterity,” and how organizations have to reconcile seemingly irresolvable internal tensions and conflicting demands in their task environments to become ambidextrous (Raisch and Birkinshaw, 2009). The practical application of ambidexterity would imply that organizations would have cultures that simultaneously are low-risk and risk-taking; structures that are formal and adaptive; leaders that are authoritative and visionary; and so forth. This raises a number of real world-questions, and despite the increasing interest in ambidexterity, there is still no widely agreed-upon organizational framework to actually achieve ambidexterity. Several important research issues remain unexplored, ambiguous or conceptually vague (Raisch et al, 2009, Tushman and O’Reilly 2011). Indeed, Tushman and O’Reilly note some 15 years after their first article that articulating why ambidexterity is a good idea is perhaps less important that understanding how it is implemented and operationalized (2011, p. 18).

 

What the heck is innovation anyways?

Innovation is widely regarded as a critical factor to a company´s competitive edge and performance. Schumpeter (1934, 1939, 1942) pointed to technological competition (through innovation) as the driving force behind economic growth and innovation. Early technological innovators will be rewarded with profits, and imitators will soon “swarm” the industry or sector hoping to get their share of the benefits. This will in turn fuel new cycles of innovations. Both in the business world and in academics, the loosely defined term “innovation” is often substituted for creativity, change or knowledge.

Still, “Innovation” isn’t just the invention of a new process, product, technology or service. As Schumpeter point out, the concept of innovation is closely tied in with value added — an innovation doesn’t occur until someone successfully implements it and makes money from it.

New technology can offer enticing value propositions, but the return on investment on any given technology or innovation is notoriously difficult to pinpoint. In 1993, Erik Brynjolfsson popularized the “productivity paradox,” which noted the apparent contradiction between the remarkable advances in computer power, heavy IT-investments, and the relatively slow growth of productivity at the level of the whole economy, individual firms and many specific applications. The concept is sometimes referred to as the “Solow computer paradox” in reference to Robert Solow’s famous statement “You can see the computer age everywhere but in the productivity statistics.”

Since then, McAfee and Brynjolfsson (2008) have done extensive research, tracking performance data for all publicly traded US companies from 1960 to 2005, noting that a new competitive dynamic has emerged (2008, p. 100), because new technologies that enabled companies to improve operating models exponentially. In this view, the mere existence, or availability of new technologies is not a fundamental driver of change. Rather, technology and organization is seen as dynamically interacting; IT serving as a catalyst for innovative ideas and an engine for delivering them.

This notion of technology-enabled opportunities mirrors Leonard-Barton (1988), who argues that as technology is implemented, a process of mutual adaptation between the technology and the organization occurs where developers and users strive to wring productivity increases from the innovation. The diffusion of technology includes changes in organization as well as the technology itself, and the outcomes are not always predetermined.

Leonard-Barton proposed that implementation misalignments between technology and organization fit into three categories: Technical, delivery system, and value. Of special interest is the latter, which is a mismatch between technology and organization, where technology disrupts and reforms the organization in fairly unpredictable and situation-specific ways. The significance and impact on job performance criteria can work on different levels. The author mentions end-users, organization managers, business managers and corporate management. Discrepancies between these four “reward systems” may strongly affect the success of technology implementation.

This project will examine how value is created in the aforementioned interplay between organizational, technological and market forces, and specifically how misalignments between technology and organization may affect value.