Friday, 9 August 2013

Bold moves and new ownership in traditional newspapers

This summer has signaled a new era of ownership in media, particularly in established newspapers. For traditional owners of newspapers the sale of the  titles reflects a change in strategy and in the case of The Washington Post even an exit from funding journalism.

At the end of July the German publisher Axel Springer, one of the largest media groups in Europe, announced that it will sell off its regional newspapers and magazines to Funke Mediengruppe for a significant purchase price of 920 million euros. Springer will however retain its big national titles including Bild, the highest-circulation newspaper in Europe and Die Welt. Strategic focus will shift to investment into digital media platforms without journalistic content like the the careers platform Stepstone, the housing portal ImmoNet.de and the price comparison portal Idealo. For a traditional publisher this a new strategic focus and it signals the end of an era where journalism was at the core of the operations of Axel Springer. Axel Springer founded the group in 1946 with a daily newspaper. For many in Germany this shift of strategy has been a shock, not least to the German Journalist Association. As for Axel Springer AG digital business already accounts for approx. 40% of total group sales and 45% of total earnings. Now the intention is to drive this development further. Axel Springer has clearly chosen to distance itself from its relatively costly classic journalistic products in favor of new digital business models. This follows an international trend of shrinking circulation figures and markedly falling advertising revenues in print media. 

The news from Germany can be compared with the developments in the past week in the USA. On Saturday August 3 it was announced that The New York Times is selling The Boston Globe and the rest of its New England Media Group to John Henry, the billionaire who is the principal owner of the Boston Red Sox, for $70 million in cash. This came as no surprise as The Boston Globe was put on sale (once again) in February. Financially the deal reflects a massive decline in the valuation of the regional newspaper business: The New York Times Company bought The Boston Globe back in 1993 for $1.1billion. This follows a sharp downfall in both print circulation and advertising: The Globe has seen its average weekday circulation plunge, tumbling 51.6% from 506,996 in 1993 to just 245,572 in 2013. It is easy to figure out why the transaction took place: The New York Times is a global brand with a digital subscriber base of 699,00 while The Boston Globe has only attracted 39,000 digital subscribers and is a regional player with its Boston.com website. The buyer, John Henry sees opportunity in the local marketplace: "The Boston Globe’s award-winning journalism as well as its rich history and tradition of excellence have established it as one of the most well respected media companies in the country.” He also cited the “essential role that its journalists and employees play in Boston, throughout New England, and beyond.” As for business model development it's harder to see what will happen next. The only thing that's obvious is that The Boston Globe will now have an owner with strong local interest. 

For The New York Times Company the sale implies even more focus on its main brand and its digital development. Arthur Sulzberger Jr., the Publisher, representing the last of the great American newspaper families, released a statement on August 8 to the staff and public: "The Times is not for sale, and the trustees of the Ochs-Sulzberger Trust and the rest of the family are united in our commitment to work together with the company's board, senior management and employees to lead The New York Times forward into our global and digital future."

This statement followed the biggest news of all week: the sale of the iconic Washington Post by the Graham family to Jeff Bezos, the founder of Amazon. The deal was announced on Monday August 5 and it took all the newsrooms in America by shock. The journalism at The Washington Post has been respected and solid throughout the years, famed for reporting on the Watergate scandal in the 1970's to the Edward Snowden-National Security Agency surveillance story, along with The Guardian in June of this year. Losses due to the rapid downfall in print revenues, just like in The Boston Globe case, is the main reason for the sale. The company was in its seventh consecutive year of declining revenues, and in spite of a strategy "to innovate like hell in digital and other businesses and offset the declines in print revenues" it did not succeed. Hence the head of the family, The Washington Post Company Chairman Donald Graham was forced to find a solution to save The Washington Post, and he found the savior in Jeff Bezos who paid $250 million out of his own personal wealth for the Post and some smaller newspapers included in the deal. 

The biggest question remains unanswered - will Jeff Bezos find a new business model to fund quality journalism at a profit? As a cunning businessman he issued a letter to the Washington Post employees, underlining that the values of the Post do not need changing: "The paper’s duty will remain to its readers and not to the private interests of its owners. We will continue to follow the truth wherever it leads, and we’ll work hard not to make mistakes. When we do, we will own up to them quickly and completely."

Jeff Bezos certainly has deep pockets with a reported fortune of approx. $25 billion. He has a proven-track record as an entrepreneur who has disrupted the book business with Amazon.com and Kindle e-readers, and he has reinvented the retail business. Amazon now has revenues in excess of $61 billion and it continues to invest and innovate e-commerce not just in the U.S., but globally. There is a good article on this topic published in Fast Company.
Expectations are high for a turnaround and most people wish to see an injection of new ideas into the troubled publishing industry. There has been a number of articles & blogs published on this subject over the past few days - a real media frenzy over the subject of an 'Internet King' buying a media icon. Amazon's experience and know-how can be utilized as to how media content can be reused and sold in many forms on multiple platforms reaching and engaging a wider audience. And there will more than likely be new delivery platforms for content over time. Amazon’s e-reader Kindle is already in place as one digital delivery platform. Long-format journalism and investigative reporting can perhaps be published both as part of the content of the Washington Post and as Kindle Singles. Content can be packaged as part of the Amazon Prime offering, combined with advertising based on the use of personal data and purchase history for recommendations. Amazon is not the owner of The Washington Post, but the synergies are clearly there.

In other words, whilst Jeff Bezos is known to take a longer perspective on his personal investments it will be more than interesting to see what this new ownership means over the next year or two. He will certainly not rest his case. In the meantime Jeff Bezos and John Henry are building on an image of not only being successful businessmen, but also respectable citizens and publishers.