What Are They Thinking? The eight principles for transforming Axel Springer

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Axel Springer headquarters. (AP Photo/dpa,Maurizio Gambarini)
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Ken Doctor

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Mathias Döpfner wants you to know that Axel Springer is a player—in the U.S., and worldwide. The C.E.O. of what is likely Europe’s largest digital media company already has transformed his heavyweight German publishing Haus, turning it into a globe-spanning media player. Springer’s investments in the U.S. have multiplied in just several years.

Most recently, Springer popped up in the latest round of funding for Business Insider, leading a $25 million round in January. The company is both a 50–50 financial partner and strategic door-opener as it moves forward with POLITICO Europe (disclosure: their partner, POLITICO, is Capital’s parent company). It wants a piece of the rush for the millennials' digital gold, putting $20 million into Ozy Media—which also serves as a hospitable home for English translations of articles from Springer’s Die Welt daily. It’s an investor in NowThis.

It’s not the U.S. market—four times bigger than Germany’s—that’s the only draw here. It’s the attempted mastery of the digital media business, and it’s an effort that offers both adventurous investment dimensions and swipes at internal product development. Both areas still remain works in early progress for Axel Springer, with the diverse competition unyielding and internal development seeing stumbles.

Mathias Döpfner is a captain of German publishing. Springer’s dailies have been among the first to test paywalls among publishers in the country. In so doing, Döpfner not only acted on what he saw as an essential strategy, but intended to act as a prod, pushing his peers along, much as Rupert Murdoch had when he placed his Times of London behind a hard paywall in 2010. Both now have seen the movement of their peers to paywalls as well.

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Döpfner, Springer and Germany have been the most resolute in the world in opposing Google’s great tentacles (its search business is even more dominant in central Europe than North America) and on the pervasive issues of privacy. They’ve gotten some traction through the European Union and within German law, but all of that work seems to have hardly slowed Google down. (Are they right? That’s a topic for another time, and one we probably won’t have an absolute judgment on for a decade.)

When I first visited German newspaper companies six years ago, I heard sympathy for the deepening decline of their American peers. They could scarcely believe the depth of the ad downturn and newsroom staff cutbacks.

Then, over the next several years, the German press started to feel the same pinch. 2013 turned out to be a pivotal year, somewhere near the “acceptance” axis on the Kübler-Ross scale (“The German press’ tipping year”). At Axel Springer, it was a time of further reckoning.

To the shock of many observers, Springer sold off its founding daily in Hamburg, the Abendblatt, and the Berlin Morgenpost, two years ago—both to Funke Media. Predictably, consolidation and cost-cutting have followed quickly and continues.

I talked broadly with Döpfner recently about the ups and downs of transformation and about the uncertain digital terra ahead. We can sort the hour-long discussion into eight key principles that have been instrumental in Axel Springer’s transformation from a print-based publishing house into a worldwide digital player and investor—all of which have meaning for the digital media business overall.

1. Be No. 1 or No. 2 in the new global digital business.

If you tell Döpfner that his company’s trajectory compares to few others, he’s flattered. Axel Springer’s plan to become a global digital media company parallels that of Oslo-based Schibsted Media Group and South Africa-based Naspers. Those three companies—Springer and Schibsted with strong newspaper and publishing legacies, and Naspers with both TV and newspaper ones—stand apart from the competition on the international stage for their innovation, says Peter M. Zollman, founder of the AIM Group / Classified Intelligence media consultancy, which counts all three top companies as clients.

“I'm happy you are comparing us to them,” says Döpfner.

Schibsted and Naspers, once fierce competitors, came to an agreement last fall, affecting three dozen or so markets worldwide, as one company or the other takes the lead in various territories. In the global digital classifieds businesses, companies stake out “horizontal” classifieds and then go vertical in the familiar categories of recruitment, real estate and automotive.

In markets like France, Springer competes head-to-head with Schibsted; given Schibsted’s digital classifieds head start, it will prove a tough competitor there and elsewhere.

While Springer pursues digital classifieds aggressively, classifieds form just one part of that digital investment strategy.

For Springer, big—and further, creating an image of bigness—is fundamental to its strategy. Reach is one way to measure that bigness, as we see in the chart below. Springer touches many more unique visitors in Europe than do its peers. Now it must turn that big number into matching revenues and profits.

2. Accelerate, incubate—and find some way to internally innovate.

Just a few weeks ago, Axel Springer announced that top executive Peter Wurtenberger would become executive V.P. for corporate development—and be based in New York City, beginning in July.

Springer executives have made many trips to the U.S. A couple of years ago, 70 of them spent time in Silicon Valley, with a couple of them spending months soaking in the Valley way of doing things.

In addition to the company’s investments through Axel Springer Digital Ventures, Mathias Döpfner is funding accelerators and incubators, in both Silicon Valley and in Berlin. The big goal: find more ways to hit digital gold.

Some observers wonder aloud, if privately, about the discipline of Springer’s digital strategy. Döpfner himself describes it as having three layers:

•  Make minority investments to kick tires and get an inside view of new businesses.

•  Assume control of companies that “move the needle for Axel Springer.” For instance, Springer recently raised its stake in its digital classifieds businesses, buying out some of partner General Atlantic’s shares and gaining the ability to further to do so.

•  Grow organically. Springer shut down its internal business development team last year and continues to rejigger its internal process. “If we say we are a digital publisher, if digital publishing is our core, we have to be able to do it organically as well. We have to successfully launch. Five years ago, we couldn’t do it. Now we can do it…. We may fail 10 times. In a couple of years, we will be able to do also on an organic-based things that are moving the needle.”

Buy vs. build, or buy and build? Döpfner says both are necessary and acknowledges that the topic inevitably brings forth “one of the most tense discussions we have internally.”

3. Greatly reduce dependency on print as a source of earnings.

Today, Springer can claim that 72 percent of its earnings now comes from digital businesses. In jettisoning newspaper businesses and investing in digital, the earnings sources have seen quick reversal. Just six years ago, only 13 percent of earnings came from digital businesses. Earnings are still a struggle, though, up only 8 million euro 2014 over 2012.

4. Rely on publisher DNA.

Döpfner believes strongly in transporting the smarts from one business model to another. He won’t venture strongly into e-commerce, for instance, “because we would be mediocre,” he says. “The likelihood is that we will fail there is high, because we don’t know that business.”

Instead, Döpfner relies on the three pillars of publishing, as he defines them: reader revenue; the ad marketplace; and classifieds (reminding all that classifieds were once 50-60 percent of all revenues).

In transferring knowledge, Döpfner wants to be the No. 1 digital model in these three segments because the knowledge of how these audiences and markets work are uniquely populated in publisher DNA.

It is in digital classifieds that Springer has made its major push so far. It is in the reader-revenue push, though, that the company’s belief in the value of content shines through.

How does he feel about his two-year-old paywalls, put in place at Bild, the tabloid that is the most popular paper in Germany, and at Die Welt, a mainstay of Europe’s quality press?

“These are tiny little figures compared to millions [2.5 for Bild] of print circulation, but we do have 250,000 digital subscribers, and [we’re] surrounded by almost all free offerings in national segment of infotainment,” says Döpfner. “To have 250,000 digital-only subscribers is impressive.” At Die Welt, 60,000 digital-only subscribers have joined 120,000 print ones.

Döpfner notes that the digital sales can be fulfilled with no hard physical or distribution costs. Still, both papers’ significant print losses continue, and the digital-only prices are no more than a quarter of the print ones; overall reader revenue is down. So how will these reader revenue economics pencil out?

The Springer plan is aggressive—and partly based on hope. The first hope: more German news publishers restrict free digital access, as Munich’s Süddeutsche Zeitung has just done.

The second hope imagines a world few others would postulate at this point.

“My most important point: If only driven by analog publishers in the digital world, it is not going to work. I’ll make a bet that as soon as the Buzzfeeds, the Huffington Posts and the Vox Medias of this world have a real share and real reach … they will start to monetize …. That monetization will definitely not be only advertising.”

Döpfner believes that reader monetization—in the form of “premium,” “freemium,” “membership” or “contribution”—is inevitable. “In the end, the reader is going to pay.”

5. Data is the new paper.

Why did newspapers work so well for so long?

“In the old world, three things [reader payment, local commerce in the form of display advertising and classifieds] -- were all encapsulated in one product, the paper,” says Döpfner. “Now they are independent entities.

So what’s the linkage among digital reader revenue, digital ad revenue and digital classifieds?

“The link today isn’t paper. It’s data.”

Döpfner talks about connecting customer data from reading to shopping to event-attending, the kind of data warehouse building that’s now fundamental to the strategies of the top two dozen or so legacy publishers going digital.

He names data among his top priorities, alongside globalization and digital reader revenue, and then acknowledges: “To be honest with you we are not where we want to be.”

It’s a frank admission, but one that I’m getting used to hearing—even from the fastest-transforming legacy companies. They now invest substantially, but see squarely the challenges, cost and time required to begin turning Big Data into actionable Little Data (“The Newsonomics of Little Data”).

6. The journalism business must be profitable, or it will die.

Döpfner likes how news businesses drive traffic to digital classifieds and other now-disconnected digital businesses, and can name a number of synergies between the new digital news and digital commerce. If, though, the synergies fell short of supporting a strong news staff, I asked, what would his commitment be to the journalism be?

“It’s a theoretical question,” he answered. “If journalism as such couldn’t be real, profitable business model, and makes no contribution to other businesses, and journalism is either a low margin or even worse or a receiver of subsidies, then I think journalism has no future. As a publicly listed company, we can’t do it out of nostalgia. This is true not only of our company, but for everyone.

“If modern journalism is not a real need of the society, a real request of the consumer and a real business, monetized by reader, advertising and new sources of revenue, if that is not the case, then forget it about journalism. Then we cannot do it, and nobody else will do it. That’s why it is so important to fight because you cannot tell me that great storytelling and information, independent, critical information, and great entertainment is not a need….I think it an everlasting desire of mankind, and it is up for us to define we are doing for the digital consumer.”

So we have it. Both a deep belief in the value of news—and a clear statement that digital classifieds and other businesses won’t subsidize the remaining large newsrooms.

Döpfner’s candor is appreciated, and his desire to support a muscular journalism is clear, but I wonder where a wholly market-driven approach to journalism funding—within the structure of public companies—may take us across Western democracies.

After all, the new digital news (and other) businesses almost all work around the principle of winner-take-all. Being No. 1 in a market is the singular goal, so we could see Schibsted winning—and supporting its journalism—and a Springer doing less well. Or vice versa.

But if only a few big companies figure out how to makes lots of digital profits, where does that leave the rest of the press that hasn’t moved to become global digital media businesses?

There are the hundreds of companies not even playing in the same league as those two companies. They won’t participate much in the digital upside—and they’re responsible for bringing readers much regional and local news, in Germany and the U.S. In addition, at the local level—where scale is arithmetically harder to come by—market funding is just tougher to achieve.

As the C.E.O. of just one media company, especially a media company that itself has largely exited the local news business, Mathias Döpfner can’t assume responsibility for the wider press. Yet, for all of us, the impacts of the business world he describes are compelling.

7. English-language digital media will rule the business world.

Someday soon, English-language media will probably generate a majority of Axel Springer’s revenue and profits. Already, 43 percent of all Springer’s revenues come from outside of Germany. In a few years, those will be a majority. Springer will have reckoned with a world in which only 100 million people speak German. Then, the globe’s one billion English speakers will begin propel more and more of Springer’s, and other global giants, revenues, all in search of a new publishing stability.

Rome didn’t last forever, but did last for a long time.

8. Waste no time focusing on loss.

I asked Döpfner how much Springer’s global reach drove his own public schedule.

Would he take his message to U.S. newspaper publishers?

“I don’t want to be part of that anymore if it is a newspaper conference where the industry is debating its own decline,” he said. “I’m interested if it’s about how do you use digital channels to drive great journalism.”

“I’m more interested in conferences dealing with digital businesses. I’m regularly participating at conferences like the [Allen & Co.] Sun Valley conference, the Google conference in Sicily that happened for first time last year and the NOAH conference in London, and we have now agreed that we will be NOAH’s partner in Berlin on the ninth and 10th of June.“

Mathias Döpfner may be a publisher in his bones, but he also finds himself advocating a kind of recombinant media DNA, as he advises his company and his peers. “Remain close to your publishing competencies,” he says. “Respect your genetic code.”