The Global Media Weekly for executives and entrepreneurs

Is this ‘secret’ business the world’s smartest media company?

The plight of traditional newspaper businesses is depressing many people in the UK, US, Australia and elsewhere. Journalists see their jobs at risk from the limitless supply of “free” always-on news and lean online ‘aggregators’. Investors face losses and the decline of historic, once so-powerful news brands. And proprietors, bloated by years of prestige, power and profit, have to accept that it might all just disappear. Try asking teenagers whether they can imagine a world without daily papers.

Falling circulations and advertising have newspaper publishers scrambling for a new ‘model’. Some are exploring innovative new businesses; and some are shopping hopefully for big, game-changing ideas. But many are caught somewhere between a reluctance to accept that the Titanic will actually sink and the hope that ‘consolidation’ (i.e. newspaper closures) will magic a return to steady profits for the survivors.

There is no need to debate whether newspapers will survive per se: they will. But the daily ‘papers’  (in hard copy and digital) will need to be different to the traditional daily – in almost every way. Anything close to the existing economic model for costs and revenue streams just won’t make it. Readers don’t want it, and advertisers don’t need it.

Mere observers of the tortured gyrations of press barons divide between those who are enjoying the humbling of playground bullies – and the fatalistic.

What most observers don’t know, though, is that some of the best newspaper chiefs have long been comforted (lulled, even) by a secret that has given them all hope. It’s called Schibsted.

That is the name of the Oslo-based company which dominates news media in Norway and Sweden, and has growing newspapers-magazines-books-TV operations in Estonia, France, and Spain and nearly-global online businesses. These past 10 years, the 172-year-old public company has dazzled its peers by – ever so quietly – becoming… one of the world’s leading media companies. It has achieved this by gutsily using its newspaper platform to a build a modern, future-proofed business light years ahead of most of the companies you  know better. It has moved fast to strengthen its existing businesses and faster still to launch new ones, whether in free newspapers or online.

The Schibsted success is breathtaking.

At a time when newspaper businesses everywhere are in decline, Schibsted (from a country with a population of under 5million and a capital city of just 600,000) is growing faster than ever. Last year, it increased  revenues by 8%, doubled its profits, and all but doubled margins. As his envious peers reeled, the Norwegian company’s CEO gloried in “a very strong year”. This year, they’re doing it again, notching up quarter-by-quarter growth at a time when much of the industry and the world is effectively in recession.

While most newspapers have bemoaned the loss of print ads (especially once-lucrative classifieds for homes, cars and jobs), Schibsted has turbo-charged its online business internationally. It is now the world’s third biggest online classified ads business, behind only Ebay and Craigslist. Last year, Schibsted’s online classified revenues grew by 23%.

The company’s motivation is familiar enough. Schibsted’s core dailies in Norway, Aftenposten (700,000 circulation) and VG (235,000) have held copy sales better than their counterparts in the US and UK. But they too have watched classified ad sections shrink as readers defect to the web. The Schibsted difference is that it owns the web site that lured away most of the business  – and that site is more profitable than ever.  “We weren’t afraid to cannibalise ourselves,” says CEO Rolv Erik Ryssdal about the decision, way back in 1999, to create the online business to compete directly with the newspapers.

It’s a strategy that has latterly powered Schibsted’s rapid global growth. The company now has online classified sites in 24 countries listing everything from cars in Italy and France, to jobs in Argentina and Australia, and property in Malaysia and Brazil. They are almost everywhere, publishing free newspapers like 20 minutes (indicating the time needed to read it) across Europe and rolling out online brands like Blocket, Tutti, Boncoin, Infojobs, and Subito across market after market. Many of its online launches have been in markets where they lacked any kind of infrastructure or local experience – the kind of guts normally associated with ‘new’ media companies. But, then, Schibsted is an old media company no more.

The two companies ahead of Schibsted in worldwide classified listings underline the scale of the Norwegian success. US companies have long railed against the not-for-much-profit Craigslist. But, in most other respects, Schibsted’s competitive approach in the US is similar: both charge little or nothing for listings. Craigslist charges for some premium categories (posh apartments in Beverly Hills, for example), while Schibsted charges advertisers who want  greater prominence. The Norwegian-based operator also carries display advertising, unlike Craigslist. So it is happily competitive – and very profitable.

It is a striking success in a country where Craigslist long ago tore up the profits of once-mighty newspaper groups. The fact is that total US newspaper ad revenue has halved in the 11 years since Craig Newmark started his little West Coast project in order to get a social life.

It’s an even better story in France where Schibsted’s online auction and classified site actually forced the mighty Ebay to close its operations altogether: an unlikely media industry triumph over whizzy new-ish rivals.

Having recently taken control of DoneDeal, Ireland’s largest online classified site, the hyperactive Norwegian group must soon be due to hit the UK, where 14% of its shareholders are based. Who knows whether it will choose to move strongly into online classified or bid for a broader base by buying newspapers…? Or launching  the free daily 20 Minutes to compete with Metro as it does in Spain, Switzerland and France? Or a dramatic UK newspaper deal with Rupert Murdoch to ease the political path for News Corp to claim its prize – pay TV network BskyB? (It might even help shareholders love Murdoch again…).

Whatever the steps, the approach of Schibsted towards the UK will alarm Fleet Street’s erstwhile occupants. It would scare any media operator, of course. The way it has comprehensively transformed its old businesses – and not just grafted on new ones – is underlined by the successes of its long-established newspapers. Its Swedish daily Aftonbladet, which is still read by almost 15% of the Swedish population, now also has 115,000 online customers paying $4 per month subscriptions for premium content. And the Norwegian tabloid VG‘s revenue has remained stable for the past eight years. The re-engineering of these old newspapers and their online operations have been crucial to the whole company whose high-margin online revenues still account for “only” one-third of the total.

The emerging Schibsted story has intrigued and (sort of) inspired UK and US newspaper chiefs for several years. They have splashed cash on consultants and visits to Norway – trying to copy (or at least understand) the recipe. Even Rupert Murdoch has flown the Norwegians out to California to talk to News Corp execs. Schibsted chiefs have not easily tired of the flattery. But now that the $3bn- turnover Schibsted is truly a major world media player not a nice tame Norwegian one, the tone has changed. Schibsted has quietly moved from showing newspaper-centric groups how to thrive in the new world – to expanding internationally at a rate that will make it even more difficult for fellow companies to catchup or even survive. A longtime foreign friend has become a domestic enemy.

And that is the point. This phase of the Schibsted story began some 10-12 years ago with a determination to create a new company exploiting (but not inhibited by) its newspaper legacy. They embarked on this new journey in Oslo at a time when when newspapers in most countries were still highly profitable – and ambivalent about the web. Schibsted saw the change coming while newspapers across the world hoped it wouldn’t.

And that’s how it has continued for the best past of the past 10 years.

For newspaper after newspaper, internet-focused operations have mostly been marginal, with the best talent, journalism and money being used on “core” newspaper activities. For all the attitude change in these recent, more desperate years, many newspapers still have web sites that (more or less) replicate their print editions. And too many still save their best journalists primarily for print.

Things are changing, of course, because there is nothing like staring-you-in-the-face financial disaster for shaking a sense of entitlement. But it is difficult to find any other newspaper company that has approached the challenge with even half of the determination and skill of Schibsted.

In the UK, unsurprisingly, some of the most promising new developments come from the two papers which together account for 100% of the profits of the entire collection of national dailies, the Daily Telegraph and the Daily Mail.

The Telegraph pioneered the ‘integrated’ newsroom for online and offline content and is privately-owned by the Barclay brothers who have made millions from home shopping. It is now working hard to develop e-commerce (i.e. retailing) through its main newspaper. Reader offers for travel and holidays are generating substantial profits for the group.

This is recognition of  “media must be retail, and retail must be media”, which needs to be inculcated in the thinking of all media groups. Soon enough, retailers will ramp up their use of editorial content to attract online buyers – and will, therefore, be competing directly with publishers. If horoscopes attract readers to newspapers, why not to retail web sites too?  Wait until the magazine dominoes start to fall, and some celebrated editors will become ‘hosts’ on retail web sites. Like online operations of all kinds, newspapers (and magazines) need to become successful ‘mediatailers’ and the Telegraph, for one, has signalled its serious intent. Last week, its reader offer for cruises almost instantly appeared high in the Google search and news rankings, showing the potential power of traditional media brands in e-commerce.

The Daily Mail is,  similarly, starting to stuff its weekend editions with home shopping merchandise. This week, the company’s unloved Northcliffe regional newspaper chain (in conjunction with the group’s winning free daily Metro) dramatically launched Wowchers to attack the exploding ‘daily deal’ market created worldwide by Groupon.

That’s an approach that is already paying dividends (literally) for Mecom, the indebted UK-owned pan-European newspaper group which is rolling out its “Sweet Deals” across Denmark, Germany, Sweden , Netherlands and Poland. The plan to have “Sweet Deals” in more than 60 cities by the end of  2011 will probably be the salvation of what was so recently a stockmarket basket case.

In some ways, those recent initiatives underline the challenge for newspaper groups as they seek to emulate the Norwegian wonder company, albeit 10 years late. But the challenge remains the same. Newspaper groups have to be brave, and to develop  and/or acquire ‘new’ businesses and allow them to compete openly with their own existing, legacy businesses. That, of course, is easier said than done. But there is more.

The newspapers themselves must also be allowed to reinvent and compete. These big, traditional news brands have market positions, reputations, and audiences that – even now – can be exploited in profitable new ways. And the scale of these newspaper audiences makes e-commerce an obvious (as well as essential) prospect.

The success of the London Metro (clone of another Scandinavian creation), of City AM, and the rising strength of the city’s excellent, nearing-breakeven Evening Standard shows the appetite (among readers and advertisers) for free newspapers, as one “new” model for dailies.

But – and this is the biggest challenge of all –  traditional newspaper organisations have to be radical with their costs. Although the decline in newspaper ‘consumption’ is not yet slowing, there can be no doubt that many more UK daily newspapers would be profitable if only they had the costs needed rather than those they have inherited from golden times.

But, like those earlier missed opportunities to develop digital businesses when newspapers were strong and had only themselves to compete with, the chance to change profitably will not be there forever. It seems reasonable to say that, at the current levels of circulation, many more newspapers could be profitable and reasonably stable – if they could reduce their costs. But fast forward to a few more years of decline, trimming and current cover prices, and even today’s “best plan” cost cutting might not be enough to save them.

Daily newspapers have often been notoriously slow moving beasts. The problem is (mostly) not at the top of these companies, whose bosses know exactly what is happening and are increasingly motivated to acquire and develop separate businesses to help them break out. If you have heard newspaper editors justifying their teams of 400+ journalists, you know where at least part of the problem is.

But if newspaper groups duck reinvention, they will succeed only in shrinking their inheritance. Most have already sacrificed the opportunity to be as big (or bigger) in the new world as they were in the old one. The funnel is getting narrower all the time.

The agenda is marked urgent. And newspaper groups have the vivid inspiration of Schibsted which was once an old-fashioned newspaper publisher too. A US management consultant recently described the rejuvenated Norwegian group as “probably the smartest media company in the world right now”.  Many other newspaper groups wish they hadn’t kept the secret so well.