World Association of Newspapers and News Publishers


Forget the Oscars, here come ‘The Dinkies’

World News Publishing Focus

World News Publishing Focus
Your Guide to the Changing Media Landscape

Forget the Oscars, here come ‘The Dinkies’

The first winners are three long-established companies from Europe and the US that started life as newspaper publishers. They have all succeeded in stabilising their traditional media brands while creating expansive digital operations beyond their home markets. All are growing strongly at a time when many of their peers are still in shock.

The Gold Dinky for "reinventing the traditional news business": Axel Springer

In 2009, the Berlin-based Axel Springer (best known for the racy 65-year-old tabloid Bild, which has long been Europe's bestseller) seemed like any other troubled newspaper group. That year, it suffered a 40% cut in profits. Even strong digital growth could not stop the rot. But, within five years, almost everything had changed. In the following five years to 2014, revenues increased by 50% and profit by 90%, with margins steady at 17%. It was just the start.

Fast forward to 2017 and EBITDA profit of 473m euros increased by 13% in the first nine months, with a profit margin of 18%. The performance is turbocharged by increasingly sophisticated digital classifieds which have, crucially, helped Springer become the disruptor in international markets (including the UK, France, Israel and South Africa) where it has no traditional media to defend. But its German classifieds are also achieving double-digit growth. Digital now accounts for 71% of revenues (87% of all advertising) and 77% of profit. Some 49% of revenues are generated outside Germany, and the company is a significant investor in digital ventures in the US and Europe. In less than 10 years, Axel Springer has become truly digital and global.

This is not how it's meant to be for a company still best known for the newspapers Bild and Die Welt and which, 16 years ago, had been dismissed as "an internet midget" by the Financial Times.

The transformation has been wrought by an impressive and remarkably stable team led by former journalist Mathias Döpfner, who became CEO in 2002. It had been 15 years since the eponymous founder's death had ushered in a succession of bosses and disastrous strategies. Döpfner was an unlikely saviour. Having studied musicology, literature and theatre science in Frankfurt and Boston, the 6ft 7 inch-tall editor had begun his career in 1982 as the music critic of the Frankfurter Allgemeine Zeitung. After working as a news correspondent in Brussels and also as manager of a classical concert agency, he moved to Gruner + Jahr magazines in 1992.

Four years later, he became editor-in-chief of the tabloid Hamburger Morgenpost. In 1998, he joined Axel Springer as editor-in-chief of Die Welt, its prestigious – but seldom profitable – national daily. He sharply reduced its losses. Within four years, the seemingly unambitious Döpfner was fast-tracked into the Springer senior management. He became CEO at age 38, not much more than half the age of his predecessor. It was the year after the company had run up trading losses of 200m euros. He set about cutting costs and, in 2004, managed to increase profits by 23%. He also rid the company of its hostile 40% shareholder, the former TV entrepreneur Leo Kirch, and restored the Springer family's majority holding.

Döpfner has worked and studied in the US, is a non-executive director of Time Warner, Warner Music, and Vodafone, has won leadership awards in the United States and at the World Economic Forum in Davos, and has lectured at Oxford University. The breadth of his experience has clearly helped him internationalise a traditional media business that, for its first 45 years, was exclusively German in language, culture and revenue – and totally print.

But the 71-year-old, family-controlled public company retains an idealistic, almost old-fashioned vision.

"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."
– Axel Springer CEO Mathias Döpfner

In this respect, the true scale of Springer's achievements may be gauged by the fact that its news media (principally the two German newspapers and – internationally – Business Insider, eMarketer, Politico Europe, and news aggregator Upday) account for 45% of revenues and 6% of profit.

US-based Business Insider (to be renamed 'Insider' from next month) was acquired for a heady $442m in 2015 and is now growing worldwide revenue by 45% a year. The 9-year-old "online newspaper" has editions in the UK, Australia, China, Germany, France, India, Italy, Indonesia, Japan, Malaysia, Netherlands, Nordics, Poland, Spain and Singapore, many with local partners. The achievement of its forecast breakeven in 2018 seems likely to endorse the Springer reputation for successful growth through major acquisition as well as organically. It will encourage even bigger deals internationally.

This 7bn-euro company and its conservative-revolutionary CEO Mathias Döpfner are the global stars among publishers seeking to escape their inky past and compete in the turbulent world of 21st century news, information and entertainment. They are living the dream of newspaper-centric businesses everywhere.

Axel Springer is the first winner.

The Silver Dinky: Schibsted

The Oslo-based company, whose newspapers Verdens Gang (VG) and Aftenposten have long been dominant in Norway and Sweden, is the global media success few could have predicted. Schibsted has been a public company since 1989 but its independence is protected by a family trust which remains the largest shareholder.

These past 10 years, the 178-year-old company has dazzled its peers by gutsily using its newspaper platform to a build a world-class and worldwide digital business. It has moved fast to strengthen its existing businesses and faster still to launch new ones. The strategy has been crafted by Rolv Erik Ryssdal who became CEO in 2009, having managed many parts of the business over the previous 18 years.

Schibsted was, arguably, the first significant newspaper company to realise the potential of becoming the digital disruptor in markets where it had no legacy business to defend – ahead of Axel Springer, which has a much broader global strategy.

Schibsted now employs 7,300 people in 30 countries across three continents through its technology-rich digital classifieds. It reaches 85% of the population in Scandinavia every week. In France, Leboncoin is the third largest site after Google and Facebook. It operates many of the leading classifieds sites in Spain, Sweden, Norway, France, Italy, Hungary, Portugal, Ireland, Tunisia and Morocco. It owns Yapo, the digital classified leader in Chile, 50% of OLX, its counterpart in Brazil, and has growing digital operations in Mexico, the Dominican Republic and Colombia. It also jointly owns the 20 Minutes free newspapers in Switzerland, France and Spain. It invests widely in digital startups and operates a highly successful incubator in Oslo. It recently acquired Kickback, the fast-growing retail awards and e-commerce operation in which it first invested four years ago.

Schibsted grew revenue by 6% and profit by 19% during 2013-16, as Ryssdal's transformation took hold. Last year, it increased revenue by 13%, with operating profit margins reaching 19%. More than 70% of revenue is now digital, and digital classifieds (which account for 40% of revenues and 89% of profit) grew by 17% in the first quarter this year.

Schibsted headquarters in OsloSchibsted headquarters in Oslo

The vitality of the 5bn-euro Schibsted can be gauged by two recent successes:

  • Shpock ("shop in your pocket"), the 'flea market app', has more than tripled to 41m downloads and 12m active monthly users in the past 18 months, principally in Austria, Germany, Italy, the UK, Norway and Sweden. It is on the way to becoming a serious challenger for eBay. One UK user described Shpock this month as "a cheap alternative to selling with eBay, with some modern functionality to boot." It certainly seems to be gaining ground almost everywhere.
  • The VG web-TV news channel, launched in 2013 by the VG Norwegian tabloid, now claims an audience of 420k daily unique viewers and more than 25m video stream starts per month on its own platform. VGTV is getting almost 1m video views – in Norway, which has a population of only 5m. VGTV, which now has 70 employees, scored $10m in revenue in 2016 and is running almost 50% ahead this year. In March, its advertising beat VG's print revenues for the first time. This increasingly effective monetisation of TV-like online video news looks like a perfect role model for media groups everywhere. Especially those, like Schibsted, which realise that the success has been turbocharged by its separation from the newspaper that spawned it. It is clear that online news services like this (and also Scripps' Newsy in the US) could grow hugely in tandem with video streaming. Given the broadcast profits of CNN and Fox News, there is a lot to go for.

The Schibsted boss says, "We aim to be a global leader in online classified marketplaces and offer the best solutions and services for our users."

And the company's traditional publishing activities are growing again. This year, it has achieved 600,000 newspaper subscribers for the first time. VG has grown revenue by 7% and has a profit margin of 20%. Print still works.

The Bronze Dinky: Hearst

Hearst can claim to be the world's first media company. It was created 130 years ago in 1887 when (William) Randolph Hearst (in photo) transformed his single San Francisco newspaper into a media group with the acquisition of newspapers, magazines and pioneering movie and newsreel productions. Sixty-six years after his death (and long after Hearst's yellow journalism and infamous political propaganda have been forgotten), his company has become a post-digital role model with more than 360 businesses and 20,000 employees in 130 countries.

The $10.8bn-revenue Hearst is one of America's largest private companies and among the world's largest diversified media, information and services companies. Its major interests include cable television networks such as A+E and ESPN; 80% ownership of global ratings agency Fitch Group; medical information and services; 30 television stations such as WCVB-TV in Boston and KCRA-TV in Sacramento, Calif., which reach almost 20% of US viewers; newspapers such as the Houston Chronicle, San Francisco Chronicle and Albany [NY] Times Union; 300 magazines around the world including Cosmopolitan, Elle, Harper's Bazaar, and Car & Driver; digital businesses such as iCrossing and Kubra; and investments in emerging digital companies such as Complex and AwesomenessTV.

From being a company once known primarily for its newspapers and magazines, Hearst now makes far more profit from its fast-growing B2B information companies.

It generates high-value data, analytics and software for the health care, finance and transport industries and utilities around the world. Its largest majority-owned company Fitch is its best performer. B2B now accounts for 28% of all Hearst profits – which has tripled in the past decade. B2B investments – and their profit growth – have accelerated strongly since the 2013 appointment as CEO of former financial journalist Steve Swartz. He succeeded the quietly brilliant Frank Bennack, measurably the company's most successful CEO.

But Hearst continues to thrive on a culture of innovation, even-handed partnerships, and strategic patience right across its diverse portfolio. As Swartz says, "We are fortunate to be in a host of different media sectors in all different stages of taking on disruptive forces, and those that have been in the battle the longest offer constructive and quite optimistic lessons for those businesses that are newer to the fight."

It is clear, at Hearst as elsewhere, that magazines are under real pressure, not least because readers are increasingly reluctant to pay real money for them. And the once-easy profit in international editions has declined sharply. In the six years since (early on in his job) Hearst Magazines' president David Carey paid a dizzy $650m for the worldwide Elle magazine business, he had watched much of the parent company's recent investment cash going into TV, digital pure-plays and B2B data. That was until – pow! – he persuaded the family owners to stump up $230m for the inspired but tired Rodale portfolio of global health and fitness media. Millions more have been invested in a 26,000-square-foot complex of six state-of-the-art multimedia production studios in New York to help grow Hearst's current 150 videos per week across all magazine brands.

These are further steps in the full-throated digitalisation of Hearst's famous magazine brands, which had started with the separate location of digital from print, a deliberate decision to recruit and develop new skills and make them fully accountable. This non-print adventure has scored some notable digital-only success, for example with Delish recipes which have amassed more than 500m monthly video views in under two years. One of its video hits on "whisky-soaked pickles" has had 11m views since being posted to Facebook in September.

Carey says, "We are not afraid to try new things, in print and in digital, recognizing that not all will succeed." He reported a combined 95m monthly uniques in October, 15bn video views across 2017 and 143m social media followers, reflecting substantial year-on-year increases. Digital revenues have been growing at something like 40% for the past few years and have reportedly made the fledgling operations solidly profitable.

But Hearst still makes more of its profit from broadcasting than anything else, which includes substantial earnings from shareholdings in businesses managed by its hand-picked partners. Its long-established A+E Networks JV with Disney has the cable TV channels A+E, History, Lifetime, Crime & Investigation, Biography, and the new Viceland.

These highly profitable TV interests have often been dwarfed, though, by Hearst's 20% share of the Disney-controlled ESPN, long the world's most successful sports cable network. Over the past 25 years, ESPN has thrown off huge amounts of cash for its owners, although it is now under pressure from competition over sports rights and from the Netflix-charged online TV revolution. Some years, ESPN has probably generated 50% of Hearst's total profit but the company is now more strongly diversified – and more profitable.

As Hearst tirelessly searches for new businesses that can transform corporate profitability like magazines and cable TV once did, its investment policy will continue to concentrate on global B2B media and may also shift in the direction of Complex Media (50m monthly uniques and 300m monthly video views), which is a Hearst joint venture with the US broadband-telco Verizon. Ever since its initial stake 22 years ago in the once-dominant Netscape web browser, Hearst has been one of the most successful media-tech corporate investors, with more than $1bn committed to companies including BuzzFeed, Vice, HootSuite, Caavo, LiveSafe, Roku, Science Inc, LiveSafe, Stylus, Swirl, and MobiTV. It's a great talent spotter in more ways than one.

But Hearst's original newspaper business is still there. It may have the lowest profit among the company's media divisions, but it is doing a lot better than most of its peers.

With more than 4,000 employees, the division publishes 24 dailies and 64 weeklies, mostly in Texas, California, and New York state. Its local digital services have been growing fast, and print advertising is just 40% of total revenues.

The real achievement of this legacy business, however, is that the Houston Chronicle has become one of the world's most profitable daily newspapers. Among many other well-worked activities, it has succeeded in dominating the region's online news by operating two separate web sites, one paid-for and one free. The detailed figures are closely guarded but the 115-year-old daily may be making profits of more than $60m – or almost 50% of all the profit made by Hearst's 80+ newspapers. The Houston Chronicle performance is crucial to Hearst's newspaper group, which grew 2017 profits, on a like-for-like basis, for the sixth consecutive year. And traffic to the company's 'breaking news' free websites surged to 7bn page views and 42m unique users.

Hearst Corp total revenues last year were static at $10.8bn but profits increased, due to the increasing skew towards higher-margin B2B. Although revenue in the past two years was only 1% up on 2015, it had grown by almost 140% during the previous decade. Even the realisation that the numbers were flattered by revenues from the $2.5bn+ spent on acquisitions, serves to underline the powering re-invention of a media group whose pre-tax profits are now more than $1bn. For all the disruption of its once-dominant print businesses, the versatile Hearst has scarcely missed a beat.

Next year will see more acquisitions and startups. But it will be intriguing to see whether Disney – Hearst's favoured long-term partner in ESPN, A+E and 14 ABC-affiliated television stations – turns to Steve Swartz to help it develop any of the global media it is acquiring from 21st Century Fox in its $50bn deal with Rupert Murdoch. Might this also involve Hearst's newer TV partner, the telco Verizon? Big media assets are in play.

Bubbling under

Financial Times: It was a good year for the FT, which was acquired in 2015 by Nikkei for a cool £844m. It returned to operating profit in calendar year 2016, making some £6m on revenues of £310m, compared with a small loss the previous year. The 9% increase in revenues reflected the record circulation of almost 850,000 across digital and print – up 8% year-on-year. Digital subscriptions grew 14% to 650,000.

In a world where most daily newspapers now realise they must learn to survive on readership revenues alone, the FT has grasped reality more quickly than most: its weekday newspaper is boldly priced at £2.70 and the weekend edition is £3.90.

The FT's information brands, including The Banker, Investors Chronicle and Ignites, performed strongly and achieved a profit margin of more than 45%. Print advertising now accounts for only 15% of total revenues. And the FT continues to build revenue and profit from its 200 events in 31 countries, which attract 24,000 attendees. FT editor (since 2005) Lionel Barber is receiving The Media Society Award in 2018. A nice start to Nikkei's (traditionally patient) ownership.

The New York Times: It is six full years since The New York Times erected its (then against-the-trend) paywall. It really is paying off all these years later with a strong 2017 performance. What is one of the world's best newspapers has been reporting rapid growth in digital advertising and, more importantly, a rise to almost 2.5m digital-only subscriptions, including strong growth internationally. Those subscriptions include more than 100k only for its cooking content and 300k for its daily crossword.

In some ways these adventurous endeavours to unbundle the newspaper content are more important than anything else in a market where most newspaper publishers have been so reluctant to do anything different in digital than they do in print. It also has a major (though still difficult to monetise) hit with its podcast "The Daily".

With The New York Times firmly back in profit, this is the newspaper pace-setter among those, like The Guardian and The Times of London, that are serious about attracting a global quality audience. The new family publisher A.G. Sulzberger says it would be profitable even without any advertising at all. But the overall growth in advertising and in digital subscriptions shows that The New York Times – derided for years by Rupert Murdoch, owner of the loss-making New York Post tabloid – is the one to watch.

It must be extra galling that "The Daily" was the name also of News Corp's disastrous iPad "newspaper" in 2011, and that the stand-out daily news performance comes from Mark Thompson, the Brit who became CEO of the New York Times in 2012. Previously, he had been boss of that other Murdoch nemesis, the BBC. Ouch.

Stand back and watch

Meredith Corp is in the process of completing its $2.8bn acquisition of Time Inc. Insiders can't stop talking about the distinct cultures of Manhattan-based Time Inc and Meredith from Iowa in the Midwest. Will Meredith's undoubted success in diversifying its lifestyle brands away from print extend to being able to achieve the same for Time's troubled and over-staffed mass market weeklies? The fact that Meredith had chosen not to offer for many of those magazines as part of an earlier bid implies it now has some answers and/or has secretly negotiated divestments.

We shall see also if the very act of seeking to swallow an under-profitable company as large as itself will prove too much for the gilt-edged Meredith (whose shares have gained 25% in the last three months). Who can know what the significance is of the deal being almost 25% financed by the Koch brothers, whose reputation has been built on fortunes made from petro-chemicals and (partly) spent on conservative political causes? Can't wait.

Bauer Media: The privately-owned global magazines business is creaking. Things are especially dicey in the (ex Kerry Packer) Australian business which was acquired five years ago for what seemed to be the relatively low price of A$525m. News that Aussie actor Rebel Wilson had won A$4.5m in damages from Bauer's Woman's Day magazine coincided with the latest change of CEO during a year when up to six (relatively minor) magazines have been closed. But all this was chicken-feed compared with the losses of A$116m now reported for the years 2014 and 2015.

Bauer's new Aussie CEO Paul Dykzeul (formerly head of its highly successful New Zealand subsidiary) is expected now to slim down the Aussie business and (again) seek to merge with rival Pacific Magazines, owned by TV Channel 7. Dykzeul is the company's fourth CEO in four years. But that won't phase him. We might expect to see much closer sharing between the company's operations in Australia and New Zealand after the production of Good Health magazine was shifted to Auckland.

Once the (still dominant) Australia magazine company has been stabilised and focused more on its largest and most powerful brands, the ultimate prize may be high-priced investments in AsiaPacific radio like those that have paid-off so well in the UK and Scandinavia (where the profits and growth rates dwarf Bauer magazines). But, first, more disruption.

Daily Mail & General Trust (DMGT): Equally dramatic steps are due from the UK-based publisher of the polarising UK tabloid Daily Mail and Mail Online. More than 75% of the group's profit is actually derived from B2B information services and events. It is easy to feel as if the Daily Mail newspaper actually disguises the strengths of the parent company, drags down the financial performance, and distracts the management too.

The family-controlled £2bn public company (founded more than a century ago by tabloid pioneer Lord Northcliffe) shocked investors last month with weak performances across-the-board.

There is renewed investor pressure either to sell-off the high-rated (but still unprofitable) Mail Online, or to de-merge the primarily US-based B2B operations.

DMGT shares slumped by more than 20% after it reported a 13% drop in annual profits to £226m for 2016-17 and warned of a tough year ahead. Revenues were also down 13% to £1.7bn. Hidden away in the numbers were details of £20m of "contract discounts and rebates" owed to advertisers – equivalent to 6% of all newspaper-linked advertising, which cast a different light on ads that were said to have increased by 2%. The spin is everywhere.

Mail Online, whose revenues totalled £119m, was said to have made a debut profit in the fourth quarter of the year, though this may have been due only to changes in internal cost transfers. MailOnline's huge 199m global audience is attracted mostly by celebrity content that is not directly part of the UK newspaper. After 14 loss-making years, it is clear that DMGT might just never find worthwhile profits in global lite news.

Reports of advertising slow-down on rival BuzzFeed (which has lower costs and higher revenues than MailOnline) might also help the longtime high-flying UK media group to decide that, as a public company, it can no longer sustain these global ambitions across both consumer and B2B media, let alone its hands-off approach to portfolio investments. Tough choices for another historic media group.


Colin Morrison is a director and consultant of digital, media, and information companies, principally in the UK, Europe, and AsiaPacific.

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. His award-winning Flashes & Flames blog was honoured in the US Folio:100 as "an insightful and entertaining mind in a wobbly industry."

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

 

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WAN-IFRA External Contributor

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2018-01-17 15:08

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