Axel Springer is the picture of an ambitious traditional newspaper publisher torn between the persistent (but declining) profits of print and the soaring potential of digital. Like its internationally-focused, family-controlled European peers – Schibsted from Norway and the UK’s Daily Mail group – the €4bn German public company is racing across digital media. And it’s also wrestling with the twin challenges of maintaining historic levels of profit and growth, and competing for high-priced digital acquisitions.
The dilemma was laid bare in its 2013 Annual Report. CEO Mathias Doepfner was euphoric about his company’s year of “transformation, transition and new beginnings. There has never been so much change! We have successfully started the future of digital journalism. In the next few years, we will need to keep the pace of our accelerated digitization in order to become the leading digital publisher.”
Heady stuff. But the numbers seemed to be saying something else. Revenue was up 2%, but EBITDA was down by 9%, and profit margins fell from 18% to 16%. The transformation is actually becoming clear enough. The once so-German company is now deriving 42% of its €2.8bn revenues from international operations. Its dependence on traditional media brands has fallen to 54%. And the headlines were captured by Axel Springer’s rocketing digital revenues – now producing 65% of total EBITDA, compared with 27% two years before. The Berlin-based company, which started to get serious about digital only in about 2007, is suddenly the envy of traditional news companies everywhere.
But there is still plenty of fodder for the sceptics.
Sells regional papers
The most recent doubts come from Springer’s sale of its German regional newspapers, TV listings and women’s magazines and a Czech publishing company managed by its East European joint venture with Swiss-Based Ringier. These operations (especially the German publications) were highly profitable, generating an aggregate EBITDA of €117m from turnover of €573m – a better-than-average 20% profit margin. So, although the eventual proceeds may reach €1.1bn , the cash downpayment of €830m means the sale will dilute Springer’s earnings – the cost, they would say, of freeing up resources to fuel the new strategy.
There will be other profit sacrifices as the company offloads print – and increases its share of digital earnings. Its Russian magazines may be next. Managing the migration from print to digital often involves a calculation of how quickly to ditch or marginalize hard copy – regardless of its impact on medium-term profit. And that’s the scary bit, because the actual timing risks becoming more emotional than financial.
Axel Springer’s strategic challenges are further illuminated by its much-vaunted online classifieds joint venture with a US-based private equity firm. Under the 2012 deal, General Atlantic paid €237m for a 30% share in Axel Springer Digital Classified which then largely comprised the real estate portals SeLoger (France) and Immonet (Germany), and the pan-European jobs site StepStone. Doepfner said the JV would consolidate the business “within a new, very well capitalized company <and> will create entirely new opportunities for rapid growth and further internationalisation. In General Atlantic, we have found an outstanding partner.”
Springer’s 2013 results seemed to support the predictions and showed – for the second consecutive year – that classifieds were the star performers, accounting for €402.6m (14% of all revenues), with growth of 22% – and 40% profit margins. The JV had certainly given the company a new confidence in pushing its digital agenda. But it might have succeeded also in proving just how divergent are the objectives of a long-established public company with the inevitably short-run interests of private equity.
General Atlantic’s price for its 30% share was effectively a discounted 19% of Springer’s €1.25bn valuation of those digital assets, 50% of which was accounted for by SeLoger. The differential was covered by a €470m inter-company “loan” to Springer. But the real disappointment must have been the limited scale of acquisitions made by the JV, which have totalled only about €300m – including Total Jobs from the UK, MeineStadt from Germany, and Immoweb from Belgium – all well within Springer’s own funding and management capacity. They didn’t need General Atlantic.
IPO of classifieds?
Now, just two years later, it is reported to be looking at an IPO as the equity firm’s exit route – earlier than its reported 2015 timetable. But it gets better. The forecast IPO valuation may become a fizzy €3bn. This is based, ironically, on the €2bn price tag of German online classified group Scout24, purchased from Deutsche Telekom 18 months ago by Springer’s one-time 19% shareholder Hellman & Friedman. The painful irony is that acquisition of Scout24 – rejected as too pricey – would have provided a justification for the JV: a transformative digital deal that Springer could not have contemplated alone.
However, a €3bn market capitalisation for Axel Springer Digital Classified would thrill shareholders because it would have effectively doubled in two years. But General Atlantic would be the real winner with a total investment that had jumped from some €350m to almost €1bn in the same period. For Springer, though, it is time to decide whether to pre-empt the IPO by buying out its partner – or (most likely) to accept that it will become the controlling shareholder in a separate public company, with all the consequent expense and longer-term hassle.
If Axel Springer had not formed the digital JV, it would now have the simple 100% ownership of one of the world’s leading classified media groups. But, perhaps, that’s part of the price of transforming a historic newspaper group which was described as “a mere internet midget” by the Financial Times just seven years ago, and which achieved a majority of its profits from digital sources for the first time in 2012. That slow start reflected Springer’s deep legacy of print journalism, shared by Doepfner himself as a distinguished former editor-in-chief of the company’s quality newspaper Die Welt.
The scale and speed of revolution – and large-scale job savings in traditional publishing teams – has certainly required a lot of soul-searching and strategic courage, perhaps not least in recently selling the TV listings magazine Horzu and the 200,000-circulation newspaper Hamburger Abendblatt. The two publications had marked the start of the company formed post-War by the late Axel Ceasar Springer, whose first editors had spent a year working above a Hamburg spice warehouse, often without electricity and using borrowed typewriters. They and the early acquisition of Die Welt were the foundations of what is now one of Europe’s leading media groups.
The company’s influence, reputation and profitability were transformed by the 1952 launch of Bild, the tabloid daily based on the then hugely successful British tabloid, the Daily Mirror. But Bild became more raunchy, more political – and right-wing. It has long been one of the world’s largest-selling dailies and is still Europe’s leader, with a 2.5 million circulation and up to 12 million readers. At its peak in the 1980s, circulation topped 5million. It is printed nationwide with some 30 local editions, a structure which has enabled it to combine the role both of a national and regional daily. It has been – and remains – a huge profit-maker. But it has always been much more.
It is exactly 40 years since Heinrich Boll’s best-selling novel and film addressed Bild’s sensationalism and the political climate of panic over Red Army terrorism in 1970s West Germany. The main character, Katharina Blum, was an innocent housekeeper whose life is ruined by an invasive tabloid reporter. Like allegations that the paper helped provoke the shooting of “Danny the Red” in 1968, the story is part of the folklore and apparent notoriety of Bild.
More recently, its strongest critic, Der Spiegel magazine, described an “incendiary” publication “which fulfils the role of a rightwing popular party Germany has never had. In the corridors of the Reichstag, the ministries and also in the chancellery, there is the pronounced tendency to take Bild’s headlines at face value, without further exploration, as a valid expression of the popular mood.” But Kai Diekmann, Bild’s sparky editor-in-chief, denies his paper behaves like an “arsonist”, inflaming prejudices. “We are number one because we don’t just give people the facts, we also talk about how the facts make people feel: if you read us, you discover what holds the country together, what moves people.” But you get the point.
“The good Murdoch”
The fierce criticism of Bild punctuated Herr Springer’s life as a powerful publisher but there is another side to the man who fought for the reunification of Germany – and, symbolically, built his headquarters overlooking the Berlin Wall, which came down four years after his death. Last year, Springer was described by a leading Jewish paper as “The good Murdoch” for his substantial role in campaigning for the reconciliation of Germany and Israel: “Aside from postwar Chancellor Konrad Adenauer, no German played a more significant role in the effort to repair his country’s burdened relationship with the Jews, and to ensure its support for their state, than Axel Springer. Through his newspapers, personal diplomacy, monetary contributions, and many other initiatives, Springer fought an uphill battle to orient German public opinion in favor of Israel, a legacy that his eponymous media empire continues to this day.”
The paper added: “For much of his life, Springer, who died in 1985, was one of the most controversial—and widely hated—men in Germany. But some three decades after his death, and as the city he longed to see reunited is whole again, some are beginning to re-evaluate the man. Perhaps 23 years after the end of the Cold War and the heated ideological debates it inspired in Germany, attitudes have tempered towards the man.”
Even the legendary 1960s student activist and French-German Green Party politician Daniel Cohn-Bendit (aka “Danny the Red”) gives his old adversary some credit: “Springer was a German nationalist,” he said in a recent interview. “He wanted to prove that one could be a German nationalist and, at the same time, love Israel. This was something new for the German conservatives. Many conservatives were against paying reparations.” But that’s all history.
The controlling shareholder of Axel Springer SE today is the 71-year-old Friede Springer, fifth wife of Axel (30 years her senior), whom she met when hired as a nanny to his two sons. They were married in 1978, seven years before Springer’s death. It is a relationship which has provoked gossip, humour and litigation in almost equal measure over the years. But, perhaps, one result was that Friede Springer seemed unprepared for the demands of the business she inherited in 1985, the year it floated.
The company lurched from one crisis to another across the 15 years following Axel Springer’s death. And, then, along came Mathias Doepfner. The former editor’s meteoric rise ended an extraordinary spell of erratic management, expensive adventures, strategic posturing and shareholder manoeuvres that would have consigned the whole company to the history books if it had occurred a decade later in the heat of digital challenge.
The editor takes control
Doepfner took over as CEO in 2002, the year after Springer made losses of almost €200m. He did not look the most likely media industry leader. In the 1960s, he had been a student of musicology, German literature and theatre science in Germany and the United States. He began his journalistic career in 1982 as the music critic of the Frankfurter Allgemeine Zeitung. Having worked as the FAZ correspondent in Brussels – and as a manager in the Winderstein concert agency – he moved to Gruner + Jahr in 1992, becoming assistant to then CEO, Gerd Schulte-Hillen.
Two years later he became editor-in-chief of the Berlin weekly newspaper Wochenpost. In 1996, he was appointed editor-in-chief of the Hamburg tabloid Hamburger Morgenpost and, two years later, of Die Welt. He led the transformation of the Springer paper, eventually making it profitable for the first time. The 51-year-old former editor, shares some things in common with the company’s late founder: his love of music, his “non-Jewish Zionism”, and strong personal convictions about media and politics. In 2005, The Economist said: “Ms Springer has become extremely fond of Mr Döpfner, German media executives say, especially as his charisma and intellectual vigour remind her of her husband, an intensely political man.”
That was when Doepfner was trying abortively – as had Axel Springer many times before – to acquire German television networks in the teeth of opposition from the regulators. And before he ‘got’ digital. Whatever the some-time similarities with the company’s founder, Doepfner is a man for his times with a strongly international approach and a willingness to argue his corner. And he is a great communicator. He is also disarmingly willing to listen to critics and has been involved in debates about the role of Bild in 1970s German politics. And he has made the company carefully and informatively accountable to shareholders, staff and customers alike. But some things have not changed.
Springer’s most successful newspaper is about much more than politics to Doepfner. The paper has, throughout the past 30 years, generated anything from 40-120% of the company’s profits. Even today, the Bild group (which includes internationally successful computer and motoring magazines and is known internally as “the Red Group”) has a profit margin of some 30% and may still be responsible for 40% of the company’s profit. And it remains the most powerful media property in Germany.
The power of Bild
This legendary newspaper may (very) slowly be dying but it has an audience to die for. In earlier times, it spawned large circulation magazines and now it can sell digital services and content to the mass market. Bild’s website now has a paywall, augmented (like News Corp’s UK tabloid The Sun) by football video clips. Its “freemium” model gives limited access free of charge, with deeper online reading only for subscribers (“Bild Plus”). But it’s tough going. Doepfner has hailed the paper’s achievement of 152,000 subscribers within six months. He knows these are early days and that the paper will have to turn a much greater proportion of its current readers into “members” (with added value offers and gifts) or subscribers if Axel Springer is to future-proof its most important business.
That strategy is strengthened by the recent acquisition of the 24-hour news channel N24, which will be used to supply video for all of Springer’s digital platforms. N24 owns the eponymous German language news channel (with some 4m regular viewers) and also produces news for free-to-air channels ProSieben, Sat. 1 and Kabel 1, which originally launched the company in 2000 before selling to its management team 10 years later. Axel Springer plans to combine N24 and the Die Welt group.
Tellingly, it said the broadcaster will be the “central moving image provider for all Axel Springer brands”. And Stefan Aust, the eminent German journalist who was a N24 shareholder, will become publisher of the Die Welt group. The whole deal helps to secure journalism at the heart of Axel Springer at a time when traditionalists are getting edgy about the rising dependence on digital classifieds and e-commerce. But it also gives Springer strategically-valuable expertise in video content, which is becoming an increasingly vital part of all digital services.
While the deal is probably priced in the tens rather than the hundreds of millions of euros, this might prove to be one of Springer’s most strategic moves and highlights its CEO’s growing confidence at the helm of the company which already has the largest digital footprint of any European media company. Its monthly unique visitors dwarf peers like Schibsted (which is considerably stronger ex-Europe) and the BBC, as the chart shows (right).
Effective monetisation of that dominance might still be some way off but the company is starting to cast its acquisition net more widely. It flirted with acquisition of the UK’s Daily Telegraph group in 2004, and recently decided (along with almost everyone else) not to bid for Forbes magazine in the US. This month, it invested in the new launch of American online news and culture magazine Ozy, said to target “the change generation”. It may be just a matter of time before Springer makes a landmark acquisition of a major news or entertainment brand in the UK or US. Or Asia. And this is a company that works well with partners.
A global operator
Mathias Doepfner is every bit the international adventurer. He has worked and studied in the US, been a board director of the world’s largest media company Time Warner since 2006, is a visiting professor at Cambridge University, and has won leadership awards in the United States and at the World Economic Forum in Davos. And he has brought an increasingly global view to a business that, for its first 45 years, was exclusively German in language, culture and revenues. His restless drive to harness the best instincts of companies everywhere prompted him to send three senior executives to Silicon Valley, in a months-long mission that left an indelible mark on the company’s strategy.
As Dopefner made clear recently when discussing a follow-up trip in which his entire management team shared California college dorms and err went native: “There are plenty of ways to facilitate a change culture within an organisation…. to help managers better understand the change needs in the media landscape and their personal role as change agents… One attempt… is proving to have quite an impact on our corporate culture and our way of thinking. Silicon Valley in the United States is seen worldwide as a hub of technological innovation with global influence. The huge number of technology and Internet corporations that have settled with an unprecedented density in the San Francisco Bay Area are regarded as role models for a business culture that fosters innovation, cares about its employees, and boasts high-pace adaptability. We can benefit…. by understanding and learning from these corporations.
“That is why we decided to organise a “learning journey”. The entire first level of management from Axel Springer traveled to Silicon Valley with the board to take part in a management summit there. The result: the 80 executives and editors-in-chief… were given many new cultural impulses and a great deal of relevant know-how on digital trends during the three-day trip.”
One American-inspired feature of Springer’s recent development has been the company’s investment in start-up digital companies, something with which hundreds of media companies across the world have experimented in recent years. Springer seems to be making it work and has now partnered with the US-based, Plug and Play whose accelerator program offers a wide range of support, advice and funding. This is a large company being serious about fostering an entrepreneurial culture, building skills, learning – and eventually profits. Actually, it’s even good for current business.
The Springer owned e-commerce company Visual Meta has extended its fashion and lifestyle site ShopAlike to India. ShopAlike is now in 16 countries globally. Springer acquired its 78% stake in the now-profitable company for €40m in 2011, a small fraction of its current value. Such entrepreneurialism reflects the growing confidence of the company and its CEO. But some activity says even more about the growing excitement surrounding Axel Springer.
Taking on Google
This month, Doepfner stood out from the crowd of media executives, variously seduced and scared by the mighty Google. In an open letter, he accused the US company of abusing a monopoly position in the digital economy to discriminate against competitors and build a “superstate”.
He said Google was operating a business model that “in less reputable circles would be called a protection racket”, discriminating against competitors in its search rankings. Google’s motto was “if you don’t want us to finish you off, you’d better pay”, he said, adding that there had been a “fundamental shift in opinion” about Google among European citizens since Edward Snowden had revealed “close connections between big US online providers and the US intelligence agencies” last year. “No one knows as much about its customers as Google. Even private and business emails are read by Gmail and analysed if the need exists.”
He described as disconcerting the view, which he attributed both to Google CEO Eric Schmidt and to Facebook’s Mark Zuckerberg, in response to the NSA revelations, that “if you have nothing to hide, you have nothing to fear”: “It stands for a mental attitude and a view of the world that is common in totalitarian regimes, not in free societies. The head of the Stasi or any other secret service in a dictatorship could have come out with a line like that.” Phew.
Mathias Doepfner’s articulate aggression had Springer’s 12,000 employees cheering and attracted worldwide attention, not least because Google fears have seldom been aired publicly by any business leader anywhere, but also because it came from the chief of a German company that was once so vilified for its own political agenda. In that sense, it marked the international relaunch of Axel Springer – and of the impressive CEO who, increasingly, looks less like the heir of Axel Springer than of Rupert Murdoch at his global 20th century best. Now, everyone can see the leader.
Update: (from Financial Times, 8 December 2014 ): Axel Springer is taking full control of its digital classifieds joint venture for €446m in cash and an equity stake. Mathias Döpfner, chief executive, said: “We don’t want an IPO of this business, which is so important to us, because we don’t see it as the ideal solution for the management of this company.” Instead, private equity partner General Atlantic will become the second-biggest shareholder in Springer with about 8.6% of shares at current market value. The deal will take place in two stages, with Axel Springer initially raising its stake in the unit from 70 per cent to 85%. If an option to buy the remaining 15% of the business is not exercised, General Atlantic will be able to sell its remaining stake from the start of 2018, or seek a public listing of the unit from the start of 2020. General Atlantic paid €237m for 30 per cent of the joint venture in 2012. The digital classifieds unit posted a 20% gain in revenues to €357.1m in the first nine months of this year, compared with the same period last year. The unit, which includes German property portal Immonet and the jobs website Stepstone, posted EBITDA profit of €160.2m for the first nine months, up about 35%. (www.ft.com)
Update: 28 Sept 2015: Axel Springer has acquired Business Insider in a deal valuing the company at $442m, making it one of the largest digital publishing acquisitions to date. Springer is paying $343m to acquire a further 88% of the company, having already taken a 9% stake in January. The remaining 3% of shares are owned by Amazon founder Jeff Bezos.
Launched in 2007, Business Insider’s trademark snappy coverage is characterised by “15 inspirational quotes from Steve Jobs” and “Bill Gross is literally laughing at the stock market”. “We’ve proven the concept,” said its co-founder Henry Blodget, a former Wall Street analyst who was barred from working in the securities industry by the Securities and Exchange Commission in 2003. Business Insider had raised about $56m in early-stage capital, “including a $25m investment round led by Axel Springer in January, most of which has not been spent”. (FT.com)
Springer said the addition of Business Insider’s 76m monthly uniques would increase Springer’s total reach worldwide to more than 200m, reportedly making it the sixth largest online publisher worldwide. Chief executive Mathias Döpfner said: “With the acquisition of Business Insider, we continue with our strategy to expand Axel Springer’s digital reach and, as previously announced, invest in digital journalism companies in English-speaking regions of the world. Combining our forces will allow us to unlock growth potential and expand Business Insider’s portfolio to new verticals, new locations and new digital content. We look forward to working together with Henry Blodget <chief executive), Julie Hansen <COO> and the exceptional Business Insider team to continue shaping the future. At the same time, I am thrilled to have our close partner Ken Lerer <former AOL Time Warner executive and co-founder of Business Insider, Huffington Post and BuzzFeed> joining us.”
Axel Springer has a broad range of investments beyond its core newspaper business, which includes a joint venture in Europe with US site Poltico and a large digital classifieds business. The deal gives Business Insider a valuation much lower than the $1.5bn of BuzzFeed’s most recent funding round or the $2.5bn Vice is worth. However, it is larger than the previous record holder for an outright acquisition of a digital publisher, AOL’s $315m deal to buy the Huffington Post in 2011.
Springer was in the running to acquire the Financial Times from Pearson this summer, but was beaten at the last minute by Japanese business publisher Nikkei. (www.guardian.com)