Can Axel Springer do the ‘impossible’? (Part 2)

The German publisher has morphed from a so-called “Internet midget” 15 years ago to a hyper-active 21st century digital-led media company – perhaps one of the world’s best, argues guest poster Colin Morrison in this three-part post.

by WAN-IFRA Staff | February 25, 2016

(Continued from part 1)

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, networked with Silicon Valley executives and studied the habits of US start-up culture. The lessons took hold. They flew home and helped Döpfner change the 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 pleasantries 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:

  • Runtastic, sports and fitness data (subsequently sold)
  • YourCareerGroup
  • N24 TV news
  • Ozy news
  • MeinProspekt digital brochures
  • TunedIn Media
  • Gruenderszene,
  • @leisure holiday rentals
  • Jobsite
  • Carwale classifieds
  • Yad2 classifieds

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, Upday, 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.”

Dopfner’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. But Döpfner was euphoric.

The addition of its 76m unique monthly visitors would 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 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 300k paying online subscribers 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.

> To Part 3 of this post

Colin Morrison is a director and consultant of digital, media, and information companies, principally in the UK, Europe, and the AsiaPacific. He is chairman of the newly launched SBTV News, an online news joint venture between the (UK) Press Association and the online music platform SBTV.

He was previously CEO of international media and digital companies for Reed Elsevier, EMAP, Australian Consolidated Press, Axel Springer, Future, and Hearst. He has been widely involved in media partnerships with organisations including the BBC, Hearst, Springer, Dennis, Sony, Microsoft, Washington Post, Press Association, and Hachette.

This post was republished with permission from his blog, Flashes & Flames. His views are his own and do not necessarily express the opinion of WAN-IFRA.

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