tags: Ads & Commerce,Best Practices,Business News,Europe,New York Times,News Tech,Newsonomics of….The Digital Dozen,The Tablet, MobileTV, Video,UK,Washington Post
First published at Nieman Journalism Lab
HAMBURG — Angela Merkel’s resounding reelection may have ushered in an era of unexpected political stability in Germany. If only the German press shared in that sense of calm. Instead, the German daily press seems to be unraveling at a faster rate than its U.S. counterpart.
Print advertising loss is reaching into the double digits, several points higher than the United States. Two of the nation’s leading dailies, in Hamburg and Berlin, have just been sold by the largest publicly owned publisher in Europe, Axel Springer. Paywalls are in rapid progress, up at more than 10 percent of the country’s dailies, yet Germany’s strict pro-privacy, anti-cookie regulations will make the metered approach now sweeping the world tougher to make work. Leading newspapers are talking about going ad-free and relying almost entirely on reader revenue.
There is strong sense of a turning and tipping point. Springer’s totally unexpected sale to Funke Mediengruppe elicited a parallel shock here to the Graham family selling The Washington Post.
“In fact, all print journalists feel as if someone — in this case, the country’s most powerful publishing house — had slammed a door shut with a loud bang. The death knell is beginning to sound, quietly, behind that very door,” said Cordt Schnibben of the highly respected newsweekly Der Spiegel, in the wake of the announcement. His five-part story laid out the marked decline of German newspapering.
Meinolf Ellers, in the midst of media change as managing director of the DPA (the German equivalent to the AP) infocom and DPA media technology units, put the news in historical context. “The old world is gone…[company founder] Axel Springer was the biggest personality in post-war journalism.”
“2013 will probably prove to be the pivotal year in Germany’s newspaper decline,” says Ulrike Langer, one of the foremost analysts of the German digital news landscape. “Within the last twelve months, the Financial Times Deutschland has folded, the Frankfurter Rundschau has been sold and shrunk massively, and the regional paper Westfälische Rundschau is carrying on only in name (with duplicate content from other papers).”
Let’s look, then, at the German press experience, and, tomorrow in part two, where it’s headed in 2014, with big changes planned. We’ll look at the newsonomics of the German press change, comparing it to the U.S. experience, trying to tease out the cross-continental lessons.
The sense of decline and chaos here stands in sharp contrast to even four years ago. Then, when you talked to German publishers, they’d commiserate with their American counterparts, expressing disbelief at the more than dozen bankruptcies that were sweeping chains well known to Europeans. They couldn’t belief that U.S. law would allow clowns like Sam Zell to sweep up such titles as the L.A. Times and Chicago Tribune using phony money. The German business had slowed, sure, but it wasn’t in free fall.
Now Germany, like its counterparts in Europe and more recently Australia, has found itself subject to the same hurricane forces of digital disruption. Even South American “quality” publishers have been forced into layoffs, after years of believing their markets were somehow “different.”
Germany’s crisis is resonant with the one in the U.S. Both countries have long, proud traditions of a thriving quality — as compared to celeb-fueled tabloids — press. Both are affluent, educated, large, and geographically diverse. While the U.K.’s quality press woes have tracked along with America’s, its geography is so different — a smallish island so totally dominated by the cutthroat-competitive national press in London. Germany’s 80 million people form a market more like the U.S., with more than 10 metro areas of at least 2.5 million people spread across a wide geography.
The slope of print ad loss is growing, reaching double digits for some papers this year; it was down 9 percent in Germany last year, the same as in the United States. Over the past six years, German publishers have lost about a third of their ad revenue, faring better until recently than American publishers who’ve lost 55 percent of it over the same period. Currently, circulation volume is dropping at a 4 percent rate.
German publishers, of course, didn’t expect this world. These institutions backed by family pride — most newspapers are still held by long-established, mainly privately held, family-directed institutions — have long disproportionately invested in their newsrooms.
“Commonly, in Germany, 30 percent of overall expense goes to the newsrooms,” says media consultant Gregor Waller, a former Axel Springer executive. Layoffs, now picking up pace, have been far less severe than in the U.S., which has lost about 30 percent of daily journalists in less than a decade. Even with that large investment in news staffing, Germany’s 300-plus papers are down about 20 percent in daily circulation over the last decade — only a tad better than the American loss of about 24 percent over the same period. German dailies have priced up markedly, as have U.S. papers, and in the process traded many higher-value print readers for lower-value digital ones.
The Springer–Funke deal sent all kinds of messages to the markets and industry. Though some in Europe incorrectly cited Springer’s need for cash — for digital classifieds and services business expansion and investment — as the reason for the deal, CEO Mathias Döpfner instead saw the same kinds of numbers and trends that Don Graham saw at The Washington Post.
In addition, Springer saw a new opportunity to leverage the audiences of what will become former properties, through an unusual new business partner, Funke Mediengruppe. The deal makes the two partners in a new business that will combine and streamline both of their “existing operations and their resources for the marketing and distribution of print and digital media offerings.” To make it all work, Springer is providing a 260 million euro vendor loan to Funke, making the 920 million euro (or $1.2 billion) acquisition price work.
The future simply was not sustainable on the models of the past. Springer believed that consolidation and major cost-cutting through restructuring was essential. It couldn’t be a buyer, though. Its ownership of the dominant national tabloid, Bild, precluded it from buying competitive press and consolidating. So it sold its original Hamburg property — Hamburger Abendblatt, established by Axel Springer himself out of the ashes of World War II — and Berliner Morgenpost, along with television program guides and women’s magazines, to Funke. (The sale must still be approved by German regulators.)
Springer selling? The news electrified media across the country.
Funke Mediengruppe is an ambitious media owner that looks like it’s planning a last-man-standing print strategy, now newly overlaid with digital investment thanks to its Springer partnership. It owns more than 30 newspapers, 170 special-interest and trade magazines, 100 advertising papers, and 400 customer magazines. Its strategies in consolidation — centralization and regionalization of business processes and editorial reorganization to focus reporting resources on local, while packaging national and topical news — will seem quite familiar to anyone who has followed the moves of Digital First Media and Gannett, as well as the early moves of early cluster king Dean Singleton.
It holds on to its national quality voice, Die Welt, and its prize, Bild, Germany’s largest selling daily, a tab-sized “boulevard” product that shares DNA with both the U.K.’s Daily Mail and USA Today, but with a distinctly German personality. Whereas less than half of Springer’s revenues pre-sale come from outside the newspaper business, well more than 50 percent of them will post-sale. That’s the kind of arithmetic long espoused by Springer’s northern cousin, Oslo-based Schibsted (“Schibsted’s stunning services and classifieds business”), which is increasingly a digital competitor, having moved profoundly away from depending on print revenues.
Springer is becoming a global company, with its growing Silicon Valley programs and investment focus. That’s a tall order for non-English-product-producing companies overall.
Germany, producing some of the world’s top journalism, can’t easily tap those markets, with its language reaching a potential audience less than a tenth of what English can. (Two German dailies, Springer’s Die Welt and Suddeutsche Zeitung, are translated into English by Paris-based startup Worldcrunch.)
English-language media own a massive upper hand, as digital disruption favors those who can reach global audiences at practically no incremental distribution. Almost a sixth of the globe — and that’s a disproportionately educated, affluent sixth — can communicate in English. That’s why we see The Guardian, The New York Times, The Wall Street Journal, the Financial Times, and the BBC making global growth a top priority.
But the Springer–Funke deal — with its business partner twist — deserves attention outside the German-speaking world. While ownership moves to Funke, the new partnership will be focused strongly on technology, partnering on a next-generation ad platform based on harnessing data. That’s right — data mining, ad targeting, and analytics are as much a rationale for this agreement as is the change in ownership. Getting closer to state-of-the art audience and ad analytics, with greater audience scale, is essential for German media — whatever the ownership — if they have any hope of competing with Google, Facebook, Yahoo, and soon Twitter, for advertising euros.
That’s the same kind of consolidation/technology strategy we see with the new Local World company, partly owned by Daily Mail and General Trust, Yattendon Group, and Trinity Mirror. It’s what Gannett is trying to do companywide in the U.S.
Both of Springer’s dailies in Hamburg and Berlin are profitable — the publications sold overall throw off a 18.5 percent EBITDA margin — but the company wants to move on with its future. Both papers implemented paywalls very early on, in 2010, but haven’t adjusted them sufficiently in the years since to take advantage of lessons from other publishers. For Springer — which like Schibsted wants to radically reduce its dependence on print revenue — it was time to jettison the properties.
n 2011, a German regional media group sponsored the World After Advertising conference in Dusseldorf, at which I spoke. The title seemed a little odd back then. Now, it seems prophetic.
With print ad revenues declining faster in Germany than in the U.S., publishers are pulling out the stops on reader revenue — variations of all-access and digital-only subscriptions. But they are also starting to talk about that very world afteradvertising.
In Germany, advertising now contributes a little more than one-third of newspaper revenues, on average. With advertising in decline and paywalls going up rapidly, that share will only shrink. So the post-advertising conversation has gotten more public.
In his Spiegel piece — “Extra, Extra: Newspaper Crisis Hits Germany” — writer Cordt Schnibben cites a meeting of industry leaders last spring. There, a large ad agency head told publishers: “Get used to the fact that newspapers will have to make do without advertising revenues in the future.” The money, he said, would go elsewhere.
It’s doing so, quickly. German newspapers and magazines are losing as much or more as 10 percent of their remaining advertising revenue this year, after seeing the same result in 2012. If they are losing almost half of what they had in less than a decade, will they lose another half — or more — in the next few years?
Layoffs, the closure of papers and the shocking sale by Axel Springer of its two regional dailies in Hamburg and Berlin (“The newsonomics of the German press’ tipping year”) have all followed.
Consolidation — on the rise in the wake of the Springer sale and partnership with Funke Mediengruppe — just got another boost today. The Hanover-based Madsack announced it will centralize the national and international coverage of its major regional papers (Lübecker Nachrichten, Märkische Allgemeine Potsdam, Hannoversche Allgemeine Zeitung, and more). One central newsroom in Hanover will serve all. Think of it as Thunderdome East. Marketing, sales, and logistics will also be centralized. As with Funke’s consolidation plans, expect significant layoffs.
That sobering realization about ad revenue now guides the construction of paywalls throughout the country, and even new thinking about ad-free premium products.
“We are starting to ask the question about a paper without ads,” says Thomas Schultz-Homberg, the head of the digital media business at FAZ, or Frankfurter Allgemeine Zeitung, one of the nation’s two leading business dailies, with a daily circulation of 320,000. “What should this cost to run it profitably? What we are thinking is that it is 80 or 90 euro a month. Maybe there will be an audience that is still addicted to the paper.”
That’s a novel idea in its purity. How much would readers — themselves — have to pay to sustain a daily newspaper, without advertising? It’s a question, amazingly, that is starting to be asked in Germany, and maybe soon in the U.S. This week, The Dallas Morning News, in its new approach to digital reader revenue, announced it will offer a digital experience with fewer ads.
In the shorter term, FAZ is plowing ahead with a print/digital subscription scheme similar to those in the U.S. When it debuts its new system in the beginning of 2014, it will offer up a hybrid, metered/hard-wall model. The 30 percent or so of its content that is available in some form elsewhere will be metered content. Seventy percent — its largely proprietary content — will be behind a hard wall.
Why? Germany’s privacy protections offer a unique challenge to metered paywalls. Blocking cookies is far easier in Germany — more like a default — than it is elsewhere. Consequently, 30 to 50 percent of news readers’ reading can’t be easily metered by contemporary paywall systems.
As FAZ goes forward with its plan, it will be joined by major publishers, including Munich-based Süddeutsche Zeitung and national business news company Handelsblatt. That means most major cities will see digital access restricted in 2014, joining Bild, Axel Springer’s leading German daily pioneered that approach this year with a twist, offering soccer highlights bundled with a subscription.
While there is risk in the moves, publishers note, there’s also comfort in the company: “We’ll all go over the line together,” says Schultz-Homberg.
For FAZ, digital-only subs will cost somewhere between 31 and 35 euros, and give readers access to the website, mobile apps, and a daily e-edition. The iPad e-edition, now a standalone paid product, has proven popular. FAZ has signed up 20,000 e-paper subs, up from 15,000 just three months ago, and expects 40,000 such subscribers before the new paywall launches.
Print subscriptions will move up about 10 percent in price — a pricing action consistent with the U.S. experience — to about 50 euro a month. Want it all, print and digital: You’ll pay between 79 and 85 euro a month.
The FAZ plan will be opt-in, meaning that subscribers will have to make an affirmative choice to take the wider package. Success could be in the 3 percent of monthly unique visitors range; that’s what The New York Times is getting closer to as it approaches the end of Year 3. FAZ’s base of e-paper subscribers gives it a good early foundation for all-digital or all-access conversion.
FAZ’s move is noteworthy. Many European publishers have taken halfway gestures toward paid. Often, they charge for mobile apps or editions, but have left their websites open. Most have seen too small revenues driven by that strategy.
The notion of closing the door on free digital — and making the reader/customer proposition clear — is one that seems to conform with the digital buying psychology of our times. Offer us expensive print and free digital, and we slowly move to free. Offer us paid products, smartly bundled and taking advantage of each platform, and we’re now willing to pay. The question is: How many of us are willing to pay? That’s a question that will be better answered in Germany in 2014, and in Years 2 and 3 of many paywalls in the U.S. and elsewhere.
Press people, when they get together at such events as next week’s World Publishing Expo in Berlin, increasingly get the sense that they are in this together. It’s tough to say which press — U.S. or German — is under greater stress at this point. What’s clear is that two of largest free presses in the world are desperately looking for solutions.
Looking forward, the German and U.S. presses share key similarities — and significant differences. What’s in common:
- Both find their average readers to be aging quickly, in the mid-50s to 60 in age.
- Ad revenues have been cut by close to or more than half over a half decade;
- Metro papers bear the worst damage, as the nationals and the locals do a bit better.
- Print readers are paying more for their subscriptions, but there are fewer of them each year.
- Still, amid increased cost-cutting, 10 percent-plus margins remain.
If the similarities are clear, so is one major difference. Most of the German press is still privately and family-owned. For the last decade, that ownership provided a bulwark against the intense newsroom staff cutting we’ve seen in the U.S, where now 30 percent of daily newsroom jobs have been lost.
Will German newspapers stick with their traditionally strong funding of newsrooms, which runs as high as 30 percent of overall newspaper costs? Or will they borrow from U.S. models? The top U.S. newsrooms account for about 20 percent of their newspapers’ overall expense, with the average coming in at about 13 percent (“The newsonomics of paywalls, Pulitzers, and investing in newsrooms”).
Currently, 13,000 journalists work in 330 daily newsrooms in Germany. That compares to 38,000 in 1,400 newspapers in the U.S. But the cascading woes of newspaper finances have begun to crack that firewall. What may have once been sacrosanct is now in play.
While paywalls are a dominant theme, the early results of Funke Mediengruppe’sdeal with Axel Springer will also draw strong attention. Funke will be cutting staffing, focusing on regionalizing and nationalizing their business and editorial functions. How deeply it cuts — and what results, financially and editorially, those cuts produce — will be widely watched. Will Funke succeed with its substantial cost-cutting, finding a new stability? Or will it, like many of its U.S. counterparts, find that deep cutting simply begets more deep cutting?
As in the U.S., the question of the German press future is one of focus. The Germans have been the leading critics of Google dominance. They are properly concerned about Google’s monopolistic and privacy-depriving reach. In August of next year, the Springer-led new ancillary copyright law (Leistungsschutzrecht) will go into effect, trying to limit Google’s power in Germany. Yet the amount of resources and energy devoted to that battle have clearly diverted publishers from getting on with the digital transition. There’s been too much decrying of the loss of the old world and, so far, not enough creation of the new. Take this semi-tongue-in-cheek assertion from the Der Spiegel piece:
The online user is more dangerous for any journalist than the reader of the printed newspaper. The journalist can hold the print reader captive as soon as he has paid for a newspaper or magazine, often in the form of a lifetime subscription. The online reader is picky, moody and volatile, since the next website, the next video or the next song is always only a click away. And the online reader has two dangerous accomplices: aggregators and social media.
It’s a “them vs. us” view that’s anachronistic. Again, from Der Spiegel, the notion that it’s those selfish web people that are causing all the problems of the press:
The netizen is a media diva, spoiled by the possibilities of the new digital media, bored by analog bundles of text, and by newspapers, which are too expensive for many people’s tastes and stuffed with content that is of no interest to them. The netizen wants a customized product rather than something off the rack, and the digital citizen also wants it to be cheap — or preferably free. The netizen likes Flipboard, Zite, the Huffington Post, Tumblr, TED and taptu.
Talking to younger journalists in Germany, you hear different sentiments. They’ll talk about their daily newspaper management “not getting it,” focusing too much on anti-Google legislation and too little on finding ways to engage with new readers and new markets.
Speaking in Hamburg last week, I talked with a younger journalist eager to learn from American startup business models, the kind that have allowed small outfits like science-oriented Matter to larger operations like The Texas Tribune and the Center for Investigative Reporting to prosper. I asked him about his experience, and he smiled that so far he’d had bad luck. He’d joined FT Deutschland only to see it shut down — and then had the same experience with another publication.
He now hoped to start up a small science-oriented news site. That kind of development is much rarer in Germany than the United States. Foundation funding of journalism — a vital if too small lifeline over the last several years in the U.S. — hardly exists in Germany. The kind of buying coop system that CIR’s developed among California TV, daily newspapers, and ethnic press is difficult to imagine developing in Germany. The two countries’ presses may have a lot in common, but there are still a lot of ideas that would be a foreign concept across the ocean.
APN photo by Winfried Rothermel.