The Global Media Weekly for executives and entrepreneurs

Can Axel Springer do the ‘impossible’?

Stories about the reinvention of daily newspaper companies are often not what they seem. They tend to involve traditional media groups not so much investing in the future of news as placing their bets somewhere else entirely. Thus, the UK’s Daily Mail Group, and Hearst Corp, in the US, are investing more heavily in business media and entertainment. And even Rupert Murdoch’s News Corp is now generating 35% of its profit and all its growth from digital property listings.

All three of these family-controlled, global companies – with their rich heritage in newspapers – are effectively retreating from the news business. Their diversification strategies are helping to ensure that, when they do eventually quit the legacy operations, shareholders will be happy and no one will be surprised. Perhaps it won’t even be news.

But the real battle is happening elsewhere. In the race to master the technology before tech companies learn how to create journalistic content, traditional news brands are ranged against the likes of Facebook, Apple and Google – and news natives like BuzzFeed and Huffington Post which increasingly look like acquisition targets for either side.

Newspapers to watch

It is a race in which two legendary newspaper companies have become the ones to watch.

First, there is the Washington Post. More than two years after its $250m acquisition by Amazon’s Jeff Bezos, America’s second most famous newspaper has already overhauled the first, the New York Times, becoming the digital leader with 76m monthly uniques. The Post is reinventing itself as a “media and technology company” whose growth has come from a revamped website and mobile apps, content through Facebook, Apple and Google and (of course) pre-loaded apps on Amazon tablets. It is also offering content free through websites of smaller newspapers around the US, in a step toward fulfilling its ambition as a national rival to The New York Times and Wall Street Journal. On the way – eventually – to becoming a global news brand.

Second is Germany’s Axel Springer, whose Bild tabloid has long been Europe’s largest-selling newspaper, and which has been aggressively reinventing its print-centric business over the past five years.

As recently as 2009, the Berlin-based company seemed like any other troubled newspaper group whose sliding print advertising and circulation revenues had slashed EBITDA profits by almost 40%. Even strong digital growth had been insufficient to stop the rot. But, five years later, almost everything had changed. During 2009-14, revenues increased by 50% and EBITDA profit by 90%, with margins steady at 17%. This is not how it’s meant to be for a company still best known for the daily newspapers Bild and Die Welt. The publisher, which 15 years ago was described by the Financial Times as “an internet midget”, is now a hyper-active 21st century digital-led media company. Perhaps one of the world’s best. But it retains an idealistic, almost old-fashioned vision:

“The soul and spirit of the company 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. “

It is one of a clutch of family-controlled companies which have long dominated print media in Germany. But – while it is a long way behind the broadcast-to-books giant Bertelsmann – Axel Springer’s digital acceleration has outpaced its magazine-centric peers Burda and Bauer in revenues, although Bauer (with 25%+ margins in its traditional markets) still makes more profit. But that’s another story.

It is exactly 70 years since Springer was founded in Hamburg by Heinrich Springer and his son Axel, with the launch off the TV listings magazine Horzu and acquisition of the newspaper Hamburger Abendblatt. Their prestige and profitability were transformed by the 1952 launch of Bild, based on Lord Northcliffe’s pioneering British tabloid, the Daily Mirror. But Bild (“Picture”) became more raunchy and politically right-wing. It has long been one of the world’s largest-selling dailies and is still Europe’s leader, with 2m circulation – even after a 50% decline in the past six years. In the 1980s, it had topped 5m. It remains highly profitable and has often accounted for more than 100% of Springer profits. But it has always been much more.

It is 40 years since Heinrich Boll’s best-selling novel and film spotlighted 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 1968 shooting of Daniel Cohn-Bendit (“Danny the Red”), the story is part of Bild’s apparent notoriety.

More recently, Der Spiegel magazine, described the tabloid as an “incendiary” publication “which fulfils the role of the right-wing popular party that 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, the tabloid’s editor-in-chief and publisher, 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.” You get the point.

Fierce criticism of Bild punctuated the life of Axel Springer. But there were many other facets of 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. He has also been described by a leading Jewish paper as “The good Murdoch” for his 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 favour of Israel, a legacy that his eponymous media empire continues to this day.”

His company’s controlling shareholder is the 73-year-old Friede Springer, Axel’s fifth wife, who had been the nanny to his two sons. Axel and the 30-years-younger Friede were married in 1978, seven years before his death, which provoked long-lasting gossip, humour, and some litigation.

The newly-public company lurched from one crisis to another in the 15 years following its founder’s death, with a succession of bosses and disastrous strategies. Then, along came its unlikely saviour, Mathias Döpfner. Having studied musicology, literature and theatre science in Frankfurt and Boston, the 6ft 7 inch-tall editor began 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 the Winderstein concert agency – he moved to Gruner + Jahr 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 found himself propelled into the Springer senior management. He became chief executive in 2002 at age 38, not much more than half the age of his predecessor. It was the year after the company managed to make losses of €200m. He set about cutting costs and, in 2004, increased Springer profits by 23%. He also managed to rid the company of its hostile 40% shareholder, the former TV entrepreneur Leo Kirch.

The boss from nowhere

The tall, thoughtful Döpfner who ranks today as one of the world’s most admired CEOs could not have seemed a less likely media industry leader back in 2002. The editor’s sudden, fast-track executive career prompted colleagues and competitors to identify the characteristics he shared with the company’s late founder: his passion for music (in Döpfner’s case, everything from Mahler to James Brown), his “non-Jewish Zionism”, and strong personal convictions about almost everything in media and politics.

In 2005, The Economist, with a (sort of) characteristic restraint, reported: “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.”

Döpfner’s occasional forays into the editorial pages also echo those of the founder and have further earned the approval of the widow, who now controls 57% of the company’s shares.

Fourteen years after his surprise elevation, nobody can dispute the success of the CEO who rose to the challenge of turbulent times. A company which had been drifting since the death of its founder has regained its confidence and profitability against all the odds.

In 2014, the €507m EBITDA profits were 12% up on 2013, turbo-charged by digital revenues which had multiplied three times and comprised 53% of the total €3bn revenues. Suddenly, Europe’s most famous newspaper group was a digital company with 72% of its profit coming from “new” media. The once so-German company now derives more than 50% of its revenue from international operations including the US where it has become one of the most active investors in Silicon Valley digital startups. Axel Springer seems to be living the dream of newspaper-centric businesses everywhere.

But that is because the conservative CEO has really been a revolutionary.

Mathias Döpfner has worked and studied in the US, is on the boards of Time Warner and Vodafone, has won leadership awards in the United States and at the World Economic Forum in Davos, and has lectured at Oxford University. He has internationalised a business that, for its first 45 years, was exclusively German in language, culture and profit.

His restless drive to harness the best instincts of companies everywhere prompted him to send three senior executives – led by Bild boss Diekmann – to California, in a nine-month mission that has left an indelible mark on the rejuvenated company’s strategy. The German team roomed together in a rented house in Palo Alto, a stone’s throw from Stanford University, and networked with its graduates who dominate Silicon Valley. The Springer team studied the habits of US start-up culture, learning the lessons of success and failure in the California sun. Then they flew home and helped Döpfner to change the German company and its culture.

Corporate shock

Döpfner says:”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.”

The Silicon Valley expedition was the corporate equivalent of electro-shock therapy and had the required effect at Axel Springer But the gritty issues of a traditional news business remained amid the disruption of digital media.

The debate about the future of journalism is often derailed by painful examination of the broken business models of newspaper groups. That is what leads traditional media people – and also the Western politicians locked with them in a media time-warp – to believe that journalism will die without newspapers. Print and politicians are spookily united by a shared lament that millennials just aren’t interested. Both, of course, are missing the point: millennials (and, increasingly, others too) are finding their news elsewhere.

Traditional media must get back to realising that, while content is still important, its successful exploitation increasingly depends on the mastery of technology. It’s a high-stakes game, recognised by a relatively small group of media leaders, none more so than Mathias Döpfner.

He admits to having been jolted by Jeff Bezos’s 2013 acquisition of the Washington Post. Quite simply, he (and others too) would clearly have jumped at paying the low $250m price tag. They didn’t get the chance. What he describes as a “watershed event” made Döpfner realise that his company’s strategic journey would soon be met by tech companies coming from the other direction.

Jolted into action

The Washington Post was bought at Herb Allen’s annual Sun Valley, Idaho, media-tech conference, where Döpfner was an unwitting witness to the Amazon boss’s meetings with owner Don Graham: Bezos did his deal in between exchanging coffee-time small-talk with the unsuspecting Springer boss. But it galvanised him. The three years since have seen Axel Springer racing away from most of its traditional rivals – while keeping a close watch on Bezos’s revolution in Washington.

Although Döpfner had already been investing in digital startups in the US and Germany, the deals started to come thick and fast. In the ensuing two years, Axel Springer made more than 30 digital investments including control or acquisition of:

  • Aufeminin
  • Runtastic (subsequently sold)
  • Livingly
  • YourCareerGroup
  • N24
  • Ozy news
  • MeinProspekt
  • TunedIn Media
  • Gruenderszene,
  • @leisure
  • Jobsite
  • Carwale
  • Yad2

In between times, Döpfner shocked his employees by : divesting his still-profitable regional newspapers (including Springer’s founding daily in Hamburg) and the TV listings and women’s magazines that had been Springer’s core business for decades; selling-out of the troubled Russian market (Forbes and OK! magazines); forming a joint venture in Switzerland with long-time East European media partner Ringier; and taking 100% ownership of the digital classified group it had created with US private equity group General Atlantic. He also struck European joint ventures with Samsung, Viacom, and Politico. And he sprayed around sums up to €20m to invest in a slew of US and European digital companies including: Blendle, Thrillist, Retale, Taboola, Mic, Jaunt, Qwant, AirBnB, Pixlee, Pocket, Upday, A Plus, and NowThisMedia.

It has been a high-energy virtuoso performance by the calmly reassuring Döpfner. But not everything has gone to plan.

His ambitions for a €10bn merger with German TV leader ProSieben (which had been rejected by the competition authorities almost a decade before) fell apart again. A bid for the British newspaper The Daily Telegraph failed. And, last year, Nikkei snatched the Financial Times for a heady €1.2bn when the Springer CEO thought he had agreed a deal: “We would have loved to have bought the FT. It fitted perfectly into our strategy, but the price was too high.” In practice, the Springer team lost control of a deal which had taken too many months to negotiate. Döpfner only learned about Nikkei’s audacious late bid when his executive carrying the final copies of the contract was in flight from Berlin to London.

Döpfner’s response, just two months later, was to acquire digital Business Insider from investors who included (salt in the wound) one Jeff Bezos. The fast-growing digital had once lauded the Amazon boss’s bargain deal in paying $250m for “a business that has $581.7m in annual revenues, about one-fifth of which is a $100m internet business which is growing”. There were no such plaudits for Axel Springer’s biggest deal. It bought the 88% of Business Insider it did not already own to give it 97% ownership, valuing the whole business at $442m. Jeff Bezos would remain as a 3% shareholder.

The big splash

The valuation raised eyebrows. It was more than AOL paid to buy The Huffington Post in 2011, and almost twice what Bezos had paid for The Washington Post. Like the Huffington Post, Business Insider has never been profitable. More to the point, the price was almost exactly what Springer – just 12 months before –  is known to have shied away from paying for the impressively global Forbes magazine, which has since been widely recognised as a huge digital success – and very profitable. Insiders say that Döpfner soon regretted walking away from Forbes. But that was then. He was now euphoric to have landed Business Insider.

The addition of its 76m unique monthly visitors would, he said, increase Axel Springer’s worldwide digital audience by two-thirds to approximately 200m users, enabling the company to claim to be one of the world’s six largest digital publishers. But many observers thought that Springer’s inability to land the FT had made it just a bit too eager to get Business Insider, hence the stunning price – equivalent to 9 x revenues projected for 2015.

Bloomberg Business Week sniped that the deal marked the redemption of disgraced stock analyst Henry Blodget 13 years after he was charged with securities fraud and banned from the US securities industry. He switched to business journalism and became chief executive and editor of Business Insider: “From the beginning, in 2009, the site specialized in clickbait headlines, but it quickly acquired an audience by aggregating business news and selecting the most important stories. Springer, a venerable Berlin company…. is the exact opposite of Business Insider. It’s a legacy business with a golden high-rise headquarters and a stable of print publications that are household names in Germany. It has been trying for years to transform itself into a digital, international company. The transformation largely has succeeded.”

But Bloomberg added ominously: “As traditional publishers such as Springer know, a content-based publication needs subscription revenue, not just ad sales. At the moment, it’s hard to imagine who would pay to subscribe to Business Insider (with the possible exception of its tiny offshoot that sells original analytical reports): The site has such a huge audience because it distributes for free the stories for which other business publications — which usually do more of their own reporting — want to be paid. Blodget has shown he could build and sell a tech company, which should be a satisfying comeback from his exile from Wall Street. Yet Axel Springer may have acquired a company with some of the characteristics of the dot-com “dogs” Blodget once tipped. Eventually, the German publisher may need to invest even more money in Business Insider to turn it into a convincing flagship.”

The Business Insider deal was, for many, a first insight into the boldness of the Axel Springer international strategy. But Bild, on which the company’s success has rested for more than 60 years, really has been one of the world’s most innovative news brands.For all the shock-horror of its dog-whistle politics and a front page that featured pictures of topless women for almost 30 years, the tabloid has also spawned some hugely profitable ancillary businesses, including:

Magazines: The launch of Auto Bild 30 years ago led to a 750k circulation weekly in Germany and an international network of franchised magazines with more than 7m readers. Ten years later, Computer Bild achieved sales in Germany’s of more than 1m and, again, created a worldwide network. These – and also best-selling women’s and sports weeklies – were among the most successful examples anywhere of newspapers moving into paid-for magazines during print-boom decades when many tried and failed.

Retailing: the 1996 success of Computer Bild and the search for online revenues inspired the 2002 sale of the Volks-Computer. It was an affordable PC for every household, enabling everyone to access the internet and marketed in partnership with the country’s leading computer retailer. The computer was strongly promoted in Bild and online – and sold out within hours. It was just the start of a cross-media triumph and a series of best-selling products including cars, insurance, bikes and even paint. The Volks-Produkt (“people’s product”) has become a guarantee of quality, value, and easy availability. It has sold no fewer than 120,000 computers and laptops among more than 60m product sales with a turnover of €1bn. The Volks range may account for 10% of Bild profits. Just as the fiery tabloid had created large-circulation specialist magazines for its mass market readers, so it has now created one of Germany’s most trusted – and versatile – consumer product brands.

Such innovation alongside 250k online subscribers (paying €4.99-9.99) and a continuing newspaper circulation of 2m shows the continuing strength of the Bild brand which may still account for some 25% of all Axel Springer profits. Like its huge 1414 mobile photo and video sharing community, its fast-growing Retale mobile app for coupons and shopping promotions, and the incorporation with Die Welt of the N24 television news channel, it reinforces the image of Axel Springer as a company that is working hard to reinvent traditional media.

But the Axel Springer media transformation is still work in progress. A once so-German company has become a truly international media group. But the interim cost of this transformation has been the increasing debt – the cost of making friends and winning business in Silicon Valley.

The stream of deals, joint ventures, alliances and new services shows not only what is necessary in order to reinvent a traditional business but also just how risky the strategy can feel for employees and investors alike. Perhaps nothing underlines that more than Business Insider. Springer’s largest deal accounted for some 10% of its market capitalisation – and some 30% of its €1bn+ debt. Investors have been promised it will be profitable from 2020.

That’s a tough proposition in a market where the Financial Times and News Corp’s Wall Street Journal are investing strongly, and where Time Warner has recently announced plans for the global expansion of  CNN Money. Business Insider is clearly a game changer for Axel Springer in every sense. But the rewards must come from synergies with existing operations especially in Germany.

Those synergies have to create an advantage over existing and prospective competitors, some of whose launches will have been directly prompted by the high price Springer paid for Business Insider. The company’s success will best be measured – and sustained – not by acquisitions or deals but from organic development. Its skills and resources must, ultimately, count more than its ability to talent-spot acquisitions.

Search for digital profits

The tricky bit is that the Business Insider management is the team which helped create the brand and saved it from collapse in the 2009 banking crisis with what they now admit was “a $1bn bailout disguised as an investment”. Having pulled off the prize-winning sale to Springer, the team is now handcuffed to a much-trumpeted “extensive, long-term equity incentive” but they have already been enriched by the deal. Every corporate knows how such things can distract the best-intentioned founders-turned-executives, especially when their bosses are on another continent.

Along with Business Insider has come board director Ken Lerer. He is the former AOL Time Warner executive who – with Arianna Huffington and Jonah Peretti – co-founded Huffington Post. He and Peretti then moved on to create BuzzFeed, of which he is chairman. The gilded entrepreneur is often said to have been as successful as anyone has been at figuring out how to make money from online journalism.

As a principal of Lerer Hippeau, a hugely successful early-stage venture capital fund (in which Springer invests), his primary way of making that digital money has actually been by selling the companies to salivating traditional groups – like Axel Springer. This estimable man, who lectures on journalism and campaigns for US gun control, has become a key influence on Döpfner to whom he also sold a stake in his son Ben Lerer’s Thrillist men’s digital lifestyle site.

Whether Springer can justify making digital acquisitions at anything like the same rate in the future is an open question. But nobody doubts that Lerer can be an effective ambassador, facilitator and sounding-board in the US market.

One fundamental issue for Axel Springer involves the maturing of all things digital. The company is credited with its swing from print to digital which now accounts for some 75% of EBITDA. But it will now have to address the simple issue that not all digital revenues are either very profitable or sustainable: there is digital and digital. Springer is getting used to its excellent classified profits (with margins of 40%). It will be interesting, though, to see just how profitable Business Insider (with journalists accounting for 50% of its 350 employees) can really become. The steepness of the climb is clear enough. Business Insider’s full-year 2015 revenues – although 41% up on the previous year – were only some €38.5m, which produced losses €10.8m. Is there even a chance that these revenues could leap to €6om in 2016 and – a greater stretch still – generate pre-development” profits of, say, €15m? Business Insider’s 10% “share” of the parent company’s market value presumably means it should be generating some €50-60m of annual EBITDA profit (€150m revenue?) by 2020. Phew.

The eye-watering deal seems to contradict Axel Springer’s public insistence that it doesn’t believe in over-paying. But then so do a host of other acquisitions by the Berlin company. Even its admittedly excellent classifieds venture with General Atlantic looks expensive: the private equity firm bought 30% of Axel Springer Digital Classifieds for €240m in 2012 and then sold it back to Springer for €910m in cash and shares 2-3 years later.

Similarly, it paid up to 40 x profits for its French classified operations, and up to 15 x for similar acquisitions in the UK and elsewhere. Before the splash on Business Insider, the CEO had clearly been ready also to pay heavily for the Financial Times – if only Nikkei hadn’t quickly jumped in front of him at the last-minute. That looked more like a failed, ponderous courtship than much to do with price. And who knows how many of Springer’s speculative investments in digital startups will flop, and whether even one will strike the gold that proves the value of the whole strategy?

None of that will matter if Axel Springer starts pumping out the cash. But the degree of investor scepticism is evident in a share price that has fallen almost 20% in the past year – and not just in the recent period of market instability. Many investment analysts still assume, however, that the company’s buoyant strategies of recent years might have side-stepped some cost-savings and the trimming even of its digital portfolio (some minor assets were sold at good-ish prices in 2015). So, further cuts could yet support the company’s profit growth. And there is always the possibility of IPO or acquisition riches from at least some of those US startups.

In addition to revolutionising a newspaper business, Mathias Döpfner has carved out a substantial reputation as the man who has mobilised his European peers against the predatory Google, articulated the challenge for traditional media, and campaigned to protect journalism in the digital era. He is giving the kind of news industry leadership that, in previous decades, came from Rupert Murdoch. Springer’s dailies have been among the first to test paywalls among publishers in Germany: Döpfner was deliberately pushing his peers along, much as Murdoch had when he fought the UK unions for new printing technology in the 1980s and, 25 years later, when he put his Times of London behind a paywall.

Erratic strategy

His vision for Springer has survived a slightly jerky strategy which has sometimes seemed obsessed with television and even with buying more newspapers. The Springer CEO has been a public advocate of “Riepl’s Law”, coined more than a century ago by a former German newspaper editor, who said: “New media do not replace existing media. Media progress is cumulative, not substitutive. New media are constantly added, but the old ones remain. This law has yet to be disproved. Books have not replaced storytelling. Newspapers have not replaced books; radio has not replaced newspapers; and television has not replaced radio. It follows that the Internet will not replace television or newspapers.”  But what about the profits?

Döpfner insists that the advertising-only revenue streams of digital media will expand to include readership revenue – once consolidation gets underway. Many people are not so sure and believe that the aversion to advertising with paid-for content will harden over time, especially among millennial audiences. But the Springer talk of ‘freemium’ (i.e. some free content, some paid) actually gives Springer plenty of flexibility. This is a media CEO who thinks deeply about such trends and challenges his people to do so too.

But, closer to earth, his strategy is under more pressure.

The proposal for a merger with ProSieben TV almost certainly foundered on Friede Springer’s insistence on retaining control, whatever the relative scale of the two businesses. And, more recently, Axel Springer has dropped plans to switch to KGaA status. This is the limited partnership with a two-tier share structure that keeps some German public companies firmly under family control even when shareholdings risk dilution by share issues. The structure has long been in place at Bertelsmann, Merck, and football club Borussia Dortmund, for example.

The Springer plan to become a KGaA reflected its need to be able to raise new capital (now and in the future) to fund international deals. The structure was “sold” to investors only last month as giving Springer the “best of both worlds”: family control with access to capital markets. But investors and lenders didn’t like it, so the plan was embarrassingly and abruptly dropped. You can almost feel the strain of a company whose global ambitions seem to threaten Springer family control. But that’s only part of the rising tension.

For all the clarity of vision, it is impossible not to ask whether Döpfner’s strategy is even achievable. In an era of spiralling disruption, this flagship media business has certainly spread its risks. But its satisfying transition from dominant German company to a world player has moved it away from cosy dependence on a strong, reasonably self-contained national media market where – even now – print is dying more slowly than elsewhere and where the best all-digital news services are being provided (mostly) by traditional companies. Now, it is in the high-risk, high-reward jungle of global media.

Axel Springer can already claim a certain uniqueness among its global media peers by producing real profit growth where “Digital media is driving revenue growth and over-compensating for the decline in print”. It has – so far – been a brilliant transformation which has involved digital acquisitions of €4bn and divestments of €2.7bn over the past 10 years. The company now has all the energy, innovation – and global diversity – that could ensure success. But there’s a long way to go.

It has built a world class digital classifieds in competition with other newspaper-centric operators, the Oslo-based Schibsted and Naspers, of South Africa. Classifieds now account for 23% of all Springer revenues and almost 60% of EBITDA. But nobody expects any let-up in the fierce competition, globally as well in individual national markets. It is easy to predict that a whole second-wave of classifieds disruption is on the way. And the news media itself is further back. For a company with journalism at the heart of its strategy, the question is not so much whether the print model for news is broken (it is) but what kind of digital options will emerge to repair it.

A new model for news?

It is reasonable to assume that there will again be some kind of long-term profitability in journalism. But the model may be very different, presumably featuring user generated content, live video, citizen journalism, and some clever technology to replicate the serendipity of reading a newspaper. That’s before you get to the potentially seismic impact on news reporting of virtual reality which may soon start to emerge. Who knows what will happen when, and how far technology will drive content rather than the traditional reverse?

The scale of challenge is further emphasised by Axel Springer’s wholehearted attack on the digital classified market: because classifieds accounted for only 10% of its print business, it had little to defend and nothing to fear. It was the disruptor, especially in many countries like the UK where it had almost no pre-existing business. But will its highly profitable newspaper brands in Germany and Poland preclude the same level of aggressive expansion in digital news? Further, like many content-led companies, it may increasingly need to develop proprietary technologies for new media channels, which is why Bezos’s experiments with the Washington Post are so compelling. Springer’s Upday news aggregation app with Samsung might be just be the beginning of some important innovation. But that may also open up a whole new seam of investment – and competition.

Döpfner and his Palo Alto disciples have placed their bets as widely and wisely as possible. This exciting business needs to accelerate organic development – and start to capitalise on its investments. Now his Business Insider deal has raised the bar on digital acquisitions, the Springer CEO might just feel relieved that his spending spree is over, at least for now. Time to deliver.

UPDATE 9 March 2017:

The Springer strategy seems to be paying off, with 2016 revenue up by 4% and EBITDA profit by 7%. Digital media, whose revenues increased by 11%, now account for 67% of revenues, 85% of ad revenues and 73% of EBITDA profit. CEO Mathias Döpfner commented: “During a successful 2016, we have continued to invest in growth and further expanded our position as Europe’s leading digital publisher. This strategy is paying off: Axel Springer now has the classified ads portfolio with the strongest worldwide revenues and a large number of market-leading offerings. In a rapidly changing world we are, at the same time, seeing a high demand for orientation and reliability, which only strong media brands can provide. This year we are seeking to exploit the potential of our activities even more effectively and focus on further earnings increases.” The group’s ambitious growth strategy for Business Insider seems also to be working with the worldwide audience hitting 100m in a month for the first time. Moreover, the group’s newspapers Bild and Die Welt have 421k of subscriptions – 10% up on the year. The group increased the number of video requests on digital platforms to an average of approximately 2.7bn per month. Axel Springer is firing on all cylinders.