Daily newspapers will one day provide the most intriguing episodes in the story of how traditional media was tortured and tamed by the digital new wave.
In the week when I learned that the six-year-old Twitter is generating fast-growing profits of more than $100m on turnover of perhaps $350m, Britain’s The Guardian (a UK web pioneer) revealed punishing 2011 losses of £45m. Gannett, publishers of USA Today and 80 other newspapers including regionals in the UK, saw profits crash 25% in the first quarter this year. Australia’s self-proclaimed leading media company Fairfax (under siege from feisty mining empress Gina Rinehart) announced plans to shed 1,900 or 22% of its jobs, shrink The Age and Sydney Morning Herald to tabloids, close two printing plants, and erect paywalls round its websites. Its newsman CEO noted the “very challenging” times. Well, yes. And Pew Research Center (http://pewresearch.org) said US newspapers lost $10 in print advertising for every $1 they gained online, a deeper loss than in 2012 (when they lost $7 for every $1 gained online). Online advertising among US news groups increased last year by $207m while print advertising declined by around $2.1bn.
The cost cuts and lost revenues are neatly juxtaposed in the finding that US newspapers lost no less than 50% of their revenue in the years 2005-2009 – when staff reductions totalled (they say) just 30.
Now, they’ve all woken up and these major cuts are just a few of the “oh-so-it’s-not-coming-back” announcements from newspaper groups everywhere. Huge staff cuts and drastic changes in frequency, format and paging may be necessary to staunch the cash bleed. But the consequences of fundamental change can be difficult to predict in markets of long-standing traditions. Sudden change may be more likely to cause sudden death. After all, who can predict what will happen to the long-time habit of readers and advertisers when a newspaper reduces its frequency from daily to three-times weekly, as happened recently in the US? But these are desperate times. And it’s only just beginning
But, just as reality is coming to news groups, so the winners are starting to draw away from the losers in a race many will not finish. Look at the Flashes & Flames “beacons”, four traditional media companies in Europe and the US which are showing the way:
1. Axel Springer
In less than 10 years, the Berlin-based Axel Springer has been transformed from a spluttering old-fashioned, German press group (with almost 100% of profits coming from a single daily newspaper) into a hugely profitable international, multi-media business spanning newspapers, online, magazines, broadcasting and classifieds (http://flashesandflames.com/2012/02/09/). Last year saw profits rise by 16% with EBITDA margins reaching 19%. The first quarter of this year brought continuing good news of 7.5% profit growth. A straight third of revenues (and half of all advertising) are from digital and about the same proportion of profits comes from outside Germany, with profitable operations right across Eastern Europe, France, Spain, Switzerland, and also India.
This is a company which knows how to use partnerships for growth. Much of Springer’s growing activity in Eastern Europe is in a joint venture with Swiss media group Ringier; and its cross-Europe web classified operations are being expanded with General Atlantic as a 30% investor.
The transformation has been wrought by CEO Mathias Doepfner, who has been following the Schibsted lead (see below) in expanding Springer’s online classified skills. He has also succeeded in pushing up profit margins in its national newspapers. In a stand-out phrase, Doepfner actually referred recently to his newspaper profits as “stable”. But no one can forget that Springer’s media market domination in Germany grew from Bild, Europe’s largest selling tabloid. The paper’s conservative views this month prompted Greek politicians to label it as “the most powerful newspaper in the world”. Or at least their world. As Germany wrestled recently with Greek debts, Bild ladled up stories of lazy Greek workers and corrupt, welfare-dependant politicians. That’s probably why the racy, hawkish tabloid is still selling 3 million copies daily – and why it also has 100,000 iPad subscribers and growing.
The Axel Springer difference in this century is that Bild is but one part of an increasingly successful, future-proofed media group which understands the digital economy. Its recent £110m acquisition of the market-leading Totaljobs.com from Reed Elsevier marks Springer’s belated arrival on the UK’s main stage, just as it has despatched its Bild management stars to California to build digital alliances there. Like its country’s economy, Axel Springer is on an altogether different trajectory to most of its peers.
2. New York Times Media Group
Rupert Murdoch is, to say the least, irked by the owner of the New York Times, the International Herald Tribune, the Boston Globe and 16 other newspapers. It out-competes News Corp’s perennially loss-making New York Post and is now facing a fierce battle with his Wall Street Journal to (sort of) become the nation’s daily. Its 2010 coverage (believe it or not) reignited Murdoch’s UK phone hacking scandal, at the prompting of his nemesis The Guardian. But, more than anything else, the 160-year-old New York daily is audaciously showing the world’s largest news organisation (and proprietors everywhere) how to compete in the digital age.
Look at the scale of this unlikely success.
- The New York Times has generated almost $250m from its digital services during the 12 months to March 2012, about one-third subscriptions, two-thirds advertising. It now has almost 500,000 digital subscriptions.
- The average daily circulation of the New York Times increased dramatically by 73% to 1.6m in the 12 months ended 31 March 2012. The New York Daily News was 9% down in the same period.
- Circulation revenue has increased by 6% in the past four years.
- 75% of 2011 weekday circulation came from subscriptions (hard copy and digital) rather than single copy sales.
The significance of these numbers is that they are the clearest indication yet that digital revenues could become substantial enough to fund the high-cost, high-quality journalism that has long been the staple diet of (many) newspapers. There is still a way to go of course – and there will have to be fewer news providers generally for the remaining players to generate substantial profits. But the New York Times is also finding that bundling digital and hard copy subscriptions can be a successful strategy: sales of the daily print edition were actually 1% up during the six months up to March this year.
Those results show crucially that quality newspapers can shift their revenues towards readers and away from advertising as they push into digital. Which is just as well, given the seemingly permanent loss of advertising market share being suffered by most newspapers. US analysts have predicted that New York Times‘ copy sales/subscriptions revenue will have fully replaced lost advertising by 2014.
Rupert Murdoch may have been reading NYT’s digital achievements through gritted teeth, but he is taking notice alright. In a sign that they are testing just how readership revenues can make up for lost advertising in the UK, The Times recently doubled its iPad edition price from £2 to £4 per week.
For the New York company in Murdoch’s face, which splashed $1bn on the Boston Globe less than 20 years ago, and managed to lose a cool $40m in 2011, these surging digital subscription numbers and a return to profits in 2012 are momentous indeed. They will inspire daily newspapers everywhere.
3. Schibsted Media Group
Oslo-based Schibsted is variously touted as “the world’s smartest media company” (http://flashesandflames.com/2011/10/13/) and is still storming through its journey from news domination in Norway and Sweden to growing media operations and web classifieds in 20 countries including the US where it is giving Craigslist a run for its money.
In the first quarter of 2012, like-for-like profits were up 10% and revenues 5%. Almost 50% of the business is now outside Norway. More than half of all revenues are online advertising. Its web classified is up 19% so far this year. Like all our early winners in the digital race, Schibsted’s traditional newspaper business is getting stronger too in important ways: newspaper subscriptions are 4% up, compensating for the fall in retail copy sales.
A recent online entry into the Irish market (with DoneDeal.ie) makes you think that the UK will be next to experience the Schibsted media magic. Don’t think they haven’t had friendly conversations with admirer Rupert Murdoch about a shared future for the haunted News International and even some of the UK’s regional dailies. But they might have lost interest in Trinity Mirror. One fund manager last week tipped Schibsted for further “tremendous growth” as a company which had “proved relatively immune to the problems of the wider European economy.” He might have noted too Schibsted’s apparent immunity to the problems of the traditional media.
4. Daily Mail & General Trust
Britain’s most successful newspaper group is not a newspaper group at all. The family-controlled, listed group now derives 75% of profits from business media including Euromoney, online information, and events. A single, hardly-known business Risk Management Solutions delivers profit equivalent to two-thirds of the Daily Mail – with three times the margin. The gilded Euromoney (70% owned by DMGT) last year accounted for more than one-third of all operating profit. DMGT is an enviable collection of business media with operating profit margins of 20-30%, and consumer newspapers struggling to reach 10%.
First half profits 2012 from its eponymous national newspapers were 26% down due to lower print revenues and digital promotional activity. National paper revenues were virtually stable. That was a clue to the fact that Mail‘s 50million (75% ex-UK) online audience is cranking up the revenues but is still a good way from profitability. It is now the world newspaper site leader (ahead of the New York Times, but still behind the Huffington Post) in a race that points the way generally to an increasingly global future for online news. The Mail, in some ways, is different and not just because it is currently the leader. It realised early on that huge audiences can be delivered by Google and other search engines. Analytics are used slavishly to guarantee that, whatever or whoever is “trending” at any one time are to be found right up there on Mail Online, which is not really the Daily Mail at all. For many readers, it competes with Twitter. You can reason that Mail Online is almost a “white label” commoditised news and celebrity gossip source that may never become very profitable. Or you can assume that it will one day be a Google-like brand because millions of readers/users worldwide keep finding themselves back there and advertisers will too. Announcement of small, breakthrough June 2012 profits indicates real longterm rewards for the spirit of DMGT enterprise represented by Mail Online.
DMGT has the flawless newspaper heritage of Lord Northcliffe and is still controlled by his descendants. It also is a fascinating model in churning times, operating a £2bn group of semi-autonomous media businesses across the spectrum and in many parts of the world. It manages these with a light (i.e. low-cost) touch from the centre and, more frequently than you would think, buys and sells in a private equity kind of way. Its business information companies have kept up a pace of profit growth that few specialist B2B operators have matched. Even its newspaper operations are close to the top of their less high-performing class. And there is plenty of gutsy experimentation.
In its traditional newspaper territory, DMGT’s still-growing Metro free dailies have been as successful throughout its 12 UK editions as the pioneering (and unrelated) titles that carry the same brand in 19 other countries across the world. And the Daily Mail and Mail on Sunday continue to be strong competitors in the UK newspaper market. Now that Axel Springer is competing with DMGT’s JobSite in the UK, it will be interesting to see how far the Mail group goes to build-out the kind of international web classified network that is paying dividends for Schibsted – and Springer too. It is, after all, not clear that mid-market tabloids like the Mail will be able to develop circulation revenues to compensate for the loss of advertising. Even though revenues have recently been held up by cover price increases, the Daily Mail is no New York Times. That is why ramping up its rising ecommerce operations may be so much more the answer for DMGT.
The race is on
Our Hot 4 show how newspaper-centric companies can leverage their brands, content and traditions to re-form their businesses. They also demonstrate the clear understanding that it is newspaper advertisers who have changed the market more than readers. Harvard Business Review recently noted that, for all their preoccupation with rich editorial content, US metro dailies (and, by proxy, the UK’s quality dailies) were all about building advertising dominance especially in classifieds for cars, homes and jobs. Not only has that advertising defected from hard copy to the low-price, interactive nirvana of online but so too has much of the display advertising. Classifieds once attracted and subsidised readers when cover prices seldom covered the costs. Thus, quality newspapers (with their range and depth of journalistic content) must now get readers to pay more (a la New York Times) – and through subscriptions instead of single-issue copy sales. For some popular dailies, there may be mass market ecommerce opportunities.
For some newspapers, of course, neither option may be viable. All you can tell from the succession of newspaper job cuts across the world is that major change is (finally) gaining speed. And that means a good few years of newspaper closures as the winners stretch their lead over those whose profits have gone for good.
As Warren Buffet (who has, incidentally, been investing recently in US newspapers) said: “It’s only when the tide goes out that you learn who’s been swimming naked.” Time was when influence-peddling newspaper owners were not fussed about being seen naked. But they’re going fast.