Why Schibsted, Axel Springer are selling, while Jeff Bezos is buying

I am becoming quite the Berliner.

Last week, I attended the INMA European News Media Conference, where speakers from around the world discussed successful revenue strategies on the Web, in mobile, and in print.

Highlights included a presentation from digital frontrunner Schibsted, which is embarking on a global investment in advanced data analytics, and a visit to Axel Springer, the largest publisher in Europe, which has seen phenomenal digital growth.

Earlier this month, I had the chance to actually see Axel Springer’s digital innovation in action.

I was Berlin to sit in the jury for the Media Hack Day, a hackathon that brought together 100 creative programmers, designers, tech-savvy journalists, and concept designers from around the world.

Axel Springer hosted the event, and the main prize was a trip to Silicon Valley, where the winners get to visit its “plug & play accelerator.” 

The mission was to hack your way into newspaper archives and make the content found relevant in the digital age. The results were amazing. I wrote a piece about the event, which you can find here.

The hackers really opened my eyes to rapid innovation, and got me thinking about the future of legacy publishing companies such as Axel Springer and Schibsted.  

This is a most timely topic, as we look back at the last several months, which have seen some major newspaper properties across the globe changing hands.

Three of the transactions are of particular interest:

  1. In late July, German media powerhouse Axel Springer announced it was selling of a slew of newspapers and magazines to focus on its digital business. The sale included prime properties such as Berliner Morgenpost and Hamburger Abendblatt.

  2. The Schibsted Media Group, based in Norway, has enjoyed stunning success in transforming from a newspaper company to a digital frontrunner in online classified ads and services. In September, Schibsted offloaded newspaper properties in the volatile Baltic region. Pundits immediately speculated about whether Schibsted plans to exit the newspaper business entirely by 2017.

  3. And of course, the news that Amazon CEO Jeff Bezos was getting his own pet newspaper sparked a media frenzy of speculation about his motives. Bezos bought the struggling Washington Post for a cool US$250 million, noting that printed newspapers on actual paper is a luxury item: “It’s sort of like, you know, people still have horses, but it’s not their primary way of commuting to the office.”

Are we seeing the start of a massive newspaper clearance sale? Or are owners just making place for some new inventory? Here are some thoughts on the matter:

1. The Schibsted and Axel Springer sales are simply sound business decisions, part of a long-term strategy to diversify their investment portfolios. But the sales could also signal a gradual shift away from journalism:

Schibsted (disclaimer: I worked at Schibsted from 2000-2010) has owned Eesti Meedia for 15 years, and has, in the opinions of top management, cultivated a financially strong and strategically well-positioned media group in Estonia and the Baltics. In 2012, Eesti Meedia had revenues of €79 million.

But now the time has come to sell it off, a decision, no doubt, sparked in part by the dire outlook for newspaper circulation in Eastern Europe, which was down some -27% between 2008-2012 (against a world average of -2,2 %).

The sale price?

Estonian Media had speculated about a price tag set by Schibsted of between €20 and €456 million, but the final agreement valued Eesti Meedia at approximately €30 million. In the third quarter of this year, Schibsted will see a loss of around €26 million as a result of the transaction.

Schibsted immediately turned its attention elsewhere, acquiring the Swedish personal finance marketplace Compricer.se.

Schibsted will pay in excess of €15 million for Compricer, where operating profit in 2013 is expected to be around €1.5 million. There will be further payments if the performance of Compricer exceeds certain thresholds in 2014 and 2015.

The move is fuelled by the expectation of significant synergies with Schibsted’s existing personal finance operations. The press release notes that Compricer has a nice strategic fit with the fast-growing portfolio of personal finance-oriented online companies in the group.

It also will benefit from becoming part of Schibsted’s network of Swedish online sites, where the online newspaper Aftonbladet.se and the online classifieds site Blocket.se are the largest traffic machines.

For Schibsted, online classified alone generated some 25% of total group revenues in 2012, yielding gross operating margins (EBITDA) of a healthy 30%, compared to 12% for print operations.

This is the company’s future.

The Axel Springer newspaper sale caught the market by surprise, but is reportedly a result of CEO Mathias Döpfner’s strategy of a major corporate restructuring. From the July 25th press release:

“For Axel Springer AG, the transaction is an additional important step in implementing its strategy to become the leading digital media group.”

Germany may not be as hard hit by declining print circulation as some of the Nordic and Eastern European countries, but last year saw the demise of both the Financial Times Deutschland and the Frankfurter Rundschau.

For years, Axel Springer has set the industry standards for operational excellence, and the group is known worldwide for running tight and efficient print operations. But there are limits to how long a newspaper company can sustain profits by reducing operating costs and consolidating operations.

Der Spiegel reports that most of the print publications Axel Springer has sold off are still profitable, but could face the prospect of further erosion of circulation, readership, and ad sales.

With limited prospect for future growth, Axel Springer could be keen to stay ahead of the curve, selling off prime newspaper real estate while it still fetches a good price in the market.

“We can only be pro-active when we’re in good shape,” Axel Springer CEO Döpfner wrote in an internal e-mail to his staff, reprinted in Spiegel Online. “We will remain on track to becoming a leading digital media company.”

Buyers Funke Mediengruppe, Germany’s third largest newspaper and magazine publisher with a total of more than 500 publications in eight countries, will reportedly pay €920 million for its new assets, and Axel Springer will actually be lending it some of that sum.

The official Axel Springer press release also notes that the parties have agreed to form two new joint ventures for advertising marketing of print and digital media products and retail distribution.

Axel Springer has already made great strides in the digital transformation of its business. In the first half of 2013, digital reportedly accounted for roughly 40% of consolidated revenues, while its contribution to consolidated EBITDA rose to about 45%.

As is the case with Schibsted, Axel Springer’s digital transformation could also signal a shift away from journalism: Spiegel reports that in 2012, about two-thirds of Axel Springer’s digital revenues — some €787 million — came from non-media products. The most profitable units include the careers platform Stepstone, the housing portals Immonet and Seloger, and the price comparison portal Idealo.

So in summary, Schibsted and Axel Springer are making some tough business decisions and priorities as they accelerate their transformation into leading digital media companies.

Some see these recent newspaper sales as a move away from traditional print journalism. 

I think of the Schibsted and Axel Springer newspaper sales as part of their continuous strategic evolution, which includes a healthy diversification of their business: actively managing a portfolio of investments across sectors and industries should, on average, yield higher returns, but also pose a lower risk than any individual investment found within the portfolio.

Bottom line: Newspaper equities may still be solid, but the wise investor knows not to keep too many eggs in one basket.  

In the meantime, across the Atlantic, one digital entrepreneur is also diversifying his investment portfolio — but moving in quite the opposite direction:

2. The Washington Post purchase is not a pure business decision – but may signal a move towards new ways of valuing journalism.

The irony of an Internet entrepreneur saving a newspaper business that is on death’s door because of the Internet was not lost on media pundits when the news about the Washington Post sale broke in early August.

One important point to keep in mind is that Bezos is buying the newspaper as a personal investment, not via Amazon. No common corporation between Amazon and The Washington Post could mean no corporate synergies.

Still, for better or worse, The Washington Post sorely needs the money after seven long years of declining revenues. But buying a newspaper is a more delicate investment than it might initially seem.

Applying the market-driven business models that made Amazon a success might be just the wrong approach. Making The Washington Post thrive in purely financial terms just might force it to fail in journalistic ones, as the mechanics making a profitable business model are not the same that make excellent journalism happen.

Still, as Forbes magazine notes: Bezos is now completing his transition from Internet brat to a full-fledged media mogul, perhaps aspiring to shadow the likes of William Randolph Hearst and K. Rupert Murdoch, billionaires who have seen owning an influential newspaper (or a dozen) as a shortcut to achieving influence in government affairs.

In some ways, Bezos comes full circle to meet up with the legacies of Axel Springer and Christian Michael Schibsted. But as they may be making a quiet exit from the newspaper business, Bezos is making a noisy entry.   

About Tor Bøe-Lillegraven

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