World Association of Newspapers and News Publishers


How daily newspapers can win after all (Part 1)

World News Publishing Focus

World News Publishing Focus
Your Guide to the Changing Media Landscape

How daily newspapers can win after all (Part 1)

(In photo: William Randolph Hearst)
Axel Springer may still be best known for Bild, Europe’s largest-selling tabloid, which also operates Germany’s second largest news site. But 50 percent of revenues now come from outside Germany, with profits growing strongly through digital operations in some 20 countries. [Editor's note: In early August, Axel Springer announced the establishment of its US headquarters in New York City.]

Springer’s digital revenue growth is more than compensating for the decline in print, and more than 70 percent of profit comes from digital. But another measure of the € 3bn German company’s re-invention may be the 75 percent of 200m unique users who are hooked on its journalism. The dailies Bild and Die Welt have together amassed 394,000 paid digital subscribers, and the news brand Business Insider has a global audience of more than 70m.

This justifies the 70-year-old group’s view of its newspaper heritage: “The soul and spirit of Axel Springer is journalism. We serve our readers with independent and critical information and advice as well as good entertainment. Through our media offerings, we are making a contribution to the strengthening of freedom and democracy.”

Schibsted: 70 percent of profit from digital

The transformation is arguably matched by the Scandinavian news group Schibsted, which has also diversified from its core daily newspapers in Norway and Sweden to become a digital group with 7,000 employees in 30 countries. The 175-year-old Oslo-based company has grown operating profits by 50 percent through five years of uninterrupted revenue growth. Its newspapers remain strongly profitable but – as at Springer – almost 50 percent of revenue and 70 percent of profit come from digital, mostly from online classifieds.

Schibsted headquarters in OsloSchibsted headquarters in Oslo

Significantly, both companies had traditionally been dependent on their market-leading domestic newspapers. This narrow legacy, ironically, gave both the golden opportunity to launch digital operations (principally classifieds) in countries where they had no existing operations to defend.

These long-established, newspaper-centric companies have, therefore, become the digital insurgents competing with incumbent publishers across the world. They are digital natives.

Their success has contrasted with that of Rupert Murdoch, whose newspapers have seemed digitally flat-footed for much of the past decade, exacerbated by some woeful US investments. But News Corporation has a global online property business, which may account for as much as one-third of total profits. It is now fighting hard to transform a historic news business where tabloid profits have traditionally subsidised broadsheet losses in the UK and Australia.

In Australia, it has established a JV with the leading jobs site Seek under which newspaper sales teams will bundle Seek employment listings with print ads. And News Corp’s digital properties will also link to Seek. It’s a significant partnership 10 years after Murdoch’s head-to-head daily newspaper rival Fairfax Media lost its long-time classified revenue dominance – and most of its profit – to a clutch of digital start-ups, notably Seek and CarSales (both originally funded by James Packer) and REA online real estate, in which News Corp is the majority shareholder. This latest deal seems likely to lead eventually to the acquisition of Seek, and to M&A around the world which can fuse digital success with the still considerable market power of daily newspapers.

News Corp invests in radio in the UK

In the UK, where News Corp last year reported an operating loss of £33m on revenues of £1.2bn, it is spending £220m on the acquisition of the Wireless Group Plc. The owner of national radio stations talkSPORT, talkRADIO and Virgin Radio, 12 local radio channels and the free distribution weekly magazine Sport had 2015 revenue of £75m and operating profit of £13m.

Ironically, Wireless Group had been founded 18 years ago by Kelvin MacKenzie (former editor of News Corp’s The Sun) and was part-funded by News Corp itself. (That seemingly odd 1998 investment had discouraged MacKenzie from joining with Axel Springer to acquire the rival Daily Mirror tabloid: Vintage Murdoch activism.) But now the talk and sports radio stations and Sport magazine could – like a yet newer venture in online betting – be a perfect digital fit for The Sun.

The feisty tabloid is Murdoch’s only profitable UK newspaper and the country’s best-seller, with a print circulation some 10 percent ahead of the mid-market Daily Mail. But the Mail’s UK digital audience is still five times that of The Sun, so News Corp’s ambitions to match the 200m global reach of MailOnline or BuzzFeed will have to wait.

The Hearst powerhouse

Meanwhile, Murdoch might cast envious eyes at the 129-year-old, family-owned Hearst Corporation, which has built an unrivalled multi-media business, not least by investing widely in long-term partnerships and joint ventures.

Last year, Hearst increased its revenue by 6 percent to almost $US 11bn in what was the fifth consecutive year of record revenue and profits. Its revenue has grown by 140 percent since 2006.

That’s not what you expect from a company which claims to be the world’s oldest media company, having been launched by (William) Randolph Hearst in 1887. That was seven years after his father had acquired the San Francisco Examiner, reportedly in exchange for a poker debt. Hearst Jr. (who was immortalised by Orson Welles in the 1941 movie ‘Citizen Kane’) Orson Welles in "Citizen Kane"Orson Welles in "Citizen Kane"transformed the single newspaper into a media company, with the acquisition of newspapers, magazines and a pioneering movie and newsreel company, Cosmopolitan Productions.

He boosted the circulation of his papers with free copies and large, ominous headlines. He invented ‘Yellow Journalism’ and was vilified – decades before Murdoch, Axel Springer and the Daily Mail’s Lord Northcliffe – for emotionalising and scandalising the content of his tabloids. His media revolution was marked by crusading editorials, experimenting with printing technologies, and the expansion into magazines, radio and television.

Hearst built what was, in the 1920s and 1930s, the world’s largest media group and which – 65 years after his death – has become a post-digital role model for media companies everywhere. It is one of the world’s largest diversified media and information companies with more than 300 businesses and 20,000 employees in more than 150 countries. Its portfolio principally comprises:

Business information: From being a company once known primarily for its newspapers and glossy magazines, Hearst now makes more of its profit from business-to-business information, its fastest-growing division – by far. It generates high-value data, analytics and software for healthcare, finance, and the automotive industry and utilities around the world. It includes the 80 percent-owned Fitch global credit ratings group (which alone made 2015 total operating profits of $ 425m). Its largest wholly-owned business is the First Databank drugs information services for global health professionals which has reportedly delivered the best return on investment in the company’s history. It started with the $ 80k acquisition of a B2B magazine for pharmacists and has morphed into a $ 100m medical data business which – in the US alone – contributes to the healthcare of more than 180m people. Homecare Homebase (a software company for the ‘home health’ industry) is Hearst’s single fastest-growing business.

It’s a world away from what had, just a decade ago, mostly been an old-fashioned collection of books and advertising-supported magazines.

Today, it is all about digital delivery and high-value subscriptions.

Hearst CEO Steve SwartzHearst CEO Steve SwartzLast year, the business information division increased its profits by a stunning 33 percent. Hearst CEO Steve Swartz, a former financial journalist, says, “Our focus is on data and analytics and software used by our customers in their day-to-day operations. These businesses have a very strong growth rate, as there is more and more demand by businesses to use data to make smarter decisions. And we are looking to acquire more.” Hearst’s determination to become a global business information leader was demonstrated by its 2015 decision to increase its Fitch shareholding from 50 percent to 80 percent in a deal valued at $ 2bn.

Television: Hearst still makes far more of its profit from broadcasting than anything else, although that includes substantial earnings from shareholdings in businesses managed by its partners. It has more than 30 television stations such as WCVB in Boston and KCRA in Sacramento, reaching almost 20 percent of US homes. Its long-established A+E Networks JV with Disney has the cable TV channels A+E, History, Lifetime, Crime & Investigation, Biography, and Vice Media’s new VICELAND. The channels claim a global audience of 330m, 500m digital users, and reach 80 percent of all American homes.

These highly profitable TV interests are dwarfed, though, by Hearst’s 20-percent share in the Disney-controlled ESPN, the world’s most successful sports cable network. Over the past 25 years, ESPN has thrown off huge amounts of cash for its owners. Some years, it has generated 50 percent of Hearst’s total profit. ESPN total profits once exceeded $ 4bn, buoyed by what were America’s highest cable subscription prices. Now, that profit may be down to 50 percent of its peak in the perfect storm created by falling subscription prices in the Netflix era and the rising cost of sports programming rights. But ESPN is still a highly profitable business.

Magazines: Hearst’s 2011 deal to pay $ 919m for more than 100 worldwide magazines including Elle consolidated its position as the world’s largest publisher of monthly magazines, with 40 brands across wholly-owned companies in the US and UK, and almost 300 international editions published in more than 80 countries.

Major brands include Good Housekeeping, Harpers Bazaar, Cosmopolitan, The Oprah Magazine, House Beautiful, Redbook, Popular Mechanics, Marie Claire, Esquire, and Elle. One-time “family” magazine Cosmopolitan had been bought in 1905, and sexualised with dramatic commercial effect by editor-in-chief Helen Gurley Brown in the 1960s. It became the world’s most successfully-franchised magazine with 61 international editions and 78m readers in 100 countries. But the Elle acquisition became almost the high-water mark for magazines and especially for Hearst’s network of international editions. Magazine licensing had helped indigenous publishers all over the world exploit Hearst’s content and major brands, especially in order to attract international advertising.

In countries large and small, these local editions of global magazines were a great business for 25 years, but are now in decline. Magazine brands continue, though, to be a major business for Hearst, especially in the US (where magazine profits last year were up by 21 percent) and in the UK, where the company is a strong leader. The apparent success of the Cosmopolitan TV cable channel in Canada and Spain, the huge Cosmopolitan and Sweet channels on SnapChat, and Hearst’s increasing separation of print from high-growth digital underline a determination to find new ways to exploit its famous brands.

Investments: Since its initial stake 21 years ago in the once-dominant Netscape, Hearst Ventures has grown to become one of the most successful corporate venture funds and the model for Axel Springer’s more recent range of investments across Silicon Valley. Hearst has so far invested more than $ 1bn in media-tech companies including: BuzzFeed, Vice, HootSuite, Complex, AwesomenessTV, Roku, Science Inc, LiveSafe, MobiTV.

These are investments but they are also relationships with digital entrepreneurs that help connect the world’s oldest media group with new technologies and new thinking.

As Hearst redoubles its efforts to find fresh businesses that will transform profitability as cable TV once did, investment policy may shift in the direction of the recent acquisition of Complex Media, a joint venture with the US broadband telco Verizon. Last year, Hearst had invested $ 21m in the video-focused media company for young male audiences, alongside private equity funds. Now, Complex (with 50m monthly uniques and 300m monthly video views) is owned by the new Verizon Hearst Media Partners with its content likely to be distributed across Verizon’s AOL and the just-acquired Yahoo.

Might Hearst-Verizon eventually buy BuzzFeed?

This is a tech-media partnership to watch. Could Hearst-Verizon be eventual buyers, for example, of BuzzFeed? The Complex move follows the two companies’ investment in AwesomenessTV — a three-way partnership with DreamWorks – and a declared strategy of building new digital video channels for millennials. That is, of course, the age group which – in an earlier generation – created Hearst magazine fortunes.

Newspapers: Buried somewhere in the glowing testimony of high-growth media is Hearst’s battered newspaper division. Randolph Hearst’s original business now has the lowest profit among the company’s media divisions. But it’s doing much better than most of its peers, and last year reported a fourth straight year of profits. With more than 4,000 employees, Hearst publishes 17 dailies and 57 weeklies in cities including Houston, San Francisco, San Antonio and Albany. Its digital services have grown by an average of 14 percent for the last four years and have more than 30m monthly uniques.

 

The real achievement of this Hearst legacy business, however, is that its Houston Chronicle has become one of the world’s most profitable daily newspapers. The figures are closely guarded but the 115-year-old daily may be making profits of more than $ 60m – or over 50 percent of all the profit made by Hearst’s 70-plus newspapers. It’s a great story.

> To Part 2 of this post


Colin Morrison is a director and consultant of digital, media, and information companies, principally in the UK, Europe, and the AsiaPacific. He is chairman of the newly launched SBTV News, an online news joint venture between the (UK) Press Association and the online music platform SBTV.

He was previously CEO of international media and digital companies for Reed Elsevier, EMAP, Australian Consolidated Press, Axel Springer, Future, and Hearst. He has been widely involved in media partnerships with organisations including the BBC, Hearst, Springer, Dennis, Sony, Microsoft, Washington Post, Press Association, and Hachette.

This post was republished with permission from his blog, Flashes & Flames. His views are his own and do not necessarily express the opinion of WAN-IFRA.

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WAN-IFRA External Contributor

Date

2016-08-11 10:21

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