Old Media Splashes Out On New Tech

PlugandPlay2

Mathias Döpfner, a journalist who studied musicology, German literature and theatre, was an unlikely choice to lead Axel Springer, a multi-billion-dollar media conglomerate struggling to redefine itself for the digital age.

“Hardly anyone in the market believed in him,” says Jens Müffelmann, CEO of Axel Springer Digital Ventures. “He proved them all wrong.”

Axel Springer’s Plug And Play Accelerator

During Döpfner’s 13-year tenure the company has invested in 70 start-ups and 130 high-growth companies. Some 53% of its profits, 74% of its revenues and 72% of its EBITDA now stem from its digital properties, gaining Axel Springer recognition “as a driving force in re-inventing media business models,” says Marco Rodzynek, a partner at NOAH Advisors, the corporate finance firm behind the NOAH conference.

The drive to remain relevant in the digital age has prompted not just Axel Springer but European media companies Schibsted, Bertelsmann and Hubert Burda Media to become among the most active corporate acquirers of Internet start-ups, changing the notion of what a media company is.

It is part of a trend. Around the globe “there is a tremendous amount of M&A going on and it looks likely to accelerate,” says veteran journalist and tech executive Craig Forman, now a general partner at Next News Ventures, a San Francisco-based early-stage fund investing in technology, mobile and information companies. “What we are seeing is a natural consolidation, a real push for large-scale [media] companies to become platforms and a recognition by successful start-ups that sometimes a strategic transaction can help them get to critical mass faster.”

Axel Springer

CEO: Mathias Döpfner
Headquarters: Berlin, Germany
Year Founded: 1946

Axel Springer employs some 14,000 people and is active in more than 40 countries. The company is divided into three operating units: paid models (such as newspapers Die Welt and Bild), marketing models (such as aufeminin.com and Bonial Group) and classified ad models (StepStone and Yad2). Axel Springer reported total revenues of €3.03 billion and an EBITDA of €507 million in financial year 2014. Digital activities contribute more than 60% of its revenues and more than 70% of its EBITDA. It has invested in some 200 start-ups and high-growth companies.

Schibsted

CEO: Rolv Erik Ryssdal
Headquarters: Oslo, Norway
Year Founded: 1839

Schibsted, an international media group, that employs 6,800 people in 30 countries, owns many of the biggest newspapers in Norway and Sweden and is also engaged in news media businesses in other European companies, including France and Spain. In recent years it has systematically expanded its online classifieds business through both acquisitions and organic growth. The company, which reported 2014 revenues of 15 billion NOK (€1.7 billion), is currently investing heavily in processing and analyzing data in order to develop new services for its users.

Bertelsmann

CEO: Thomas Rabe
Headquarters: Gütersloh, Germany
Year Founded: 1835

Bertelsmann, which describes itself as “a media, services and education company,” owns radio and television broadcaster RTL Group, book publisher Penguin Random House, magazine publisher Gruner + Jahr, service providers Arvato and Be Printers, the music rights company BMG and e-learning provider Relias Learning. The company, which operates in 50 countries, has more than 112,000 employees and generated revenues of €16.7 billion in financial year 2014. It invests in start-ups globally through multiple vehicles, including a Digital Media investment arm.

Hubert Burda Media

CEO: Paul-Bernhard Kallen
Headquarters: Munich and Offenburg, Germany
Year Founded: 1903

The privately-held, family-owned media company publishes more than 320 magazines and has more than 30 direct and indirect holdings in radio and television broadcasters. It organizes Digital Life Design (DLD), an invitation-only international conference. The group’s Internet division includes business-to-consumer brands in e-commerce, online travel and social networking. Digital activities include minority holdings from Burda’s corporate venture capital company DLD Ventures. The company has 10,000 employees and in 2014 reported external revenues of €2.456 billion.

“It can seem from the outside that these deals, taken as a whole, are ‘all across the board,’ says Forman. “But if you closely look at the transactions — particularly those acquired in the European and U.S. context — the media companies are looking strategically at their own ecosystem, deciding where the gaps are and making a reasoned analysis. The transactions are based on whether it is faster and there is a higher return on investment (ROI) to buy rather than build.”

What Do These New Platforms Look Like?

In recent quarters there have been a great number of deals in Europe, but also in the States and in Asia, particularly in greater China, notes Forman. “And the high value of transactions — the big ones involve some of the biggest media, technology and telecom companies in the world; everything from companies in Asia to Verizon buying AOL.”

So what do these new platforms look like? Bertelsmann, a 180-year-old company that started life by publishing Christian literature, has built a multi-billion-dollar empire that includes not just international radio and television broadcaster RTL Group, book publisher Penguin Random House, and magazine publisher Gruner + Jahr, but music rights and e-learning companies as well as commercial web sites that let consumers sell their cars, find a job, buy clothes and manage monthly menstrual cycles via mobile phones.

Hubert Burda Media, a private, family-owned publishing business founded in 1903, is now the majority shareholder in social network Xing and holds minority stakes in e-commerce sites like Etsy.

Forays into these new areas and others follow the more obvious move by media companies to invest in ad tech and to transfer print classified ad revenue to digital marketplaces.

“Axel Springer is making more revenue from online classified advertising than we ever did in print,” says Müffelmann. It is now Axel Springer’s biggest revenue contributor, with the segment showing 43% EBITDA; nine out of 10 online classified marketplaces it owns internationally hold the lead position in their markets, according to the company’s 2014 annual report.

Journalism Does Have Value

Norway’s Schibsted, an early mover into digital classifieds, now wholly owns online classified sites in 13 countries. In November it teamed with South African mass media company Naspers, Norwegian telecom operator Telenor and Singapore Press Holdings to establish joint ventures for the development of online classifieds platforms in four more countries: Brazil, Indonesia, Thailand and Bangladesh.

But what about content, the heart of media business? The tsunami of information available online has raised questions about whether journalism is a viable business, with some going so far as suggesting that reporting should be supported by public funds, crowdsourcing or philanthropic endeavors.
Europe’s big media companies reject that notion. “Journalism does have a value behind it,” says Ulrich Schmitz, Chief Technology Officer at Axel Springer.

Venture capitalists, private equity firms and some of Silicon Valley’s most famous Internet entrepreneurs such as Amazon’s Jeff Bezos and Netscape’s Marc Andreessen are starting to recognize this, investing into what until recently was considering a sector on its way out.

“Three years ago nobody in Silicon Valley was interested in journalism but that has changed,” says Müffelmann. “There is investment in sites like Buzzfeed and Business Insider. Valuations are in the billions.”

Axel Springer is among those investing in new journalism ventures. It has injected capital into Politico Europe, a Brussels-based site covering European politics; Business Insider, a U.S.-based business news site; Gründerszene, a news site specializing in Germany’s digital economy; Ozy, a Silicon Valley-based digital daily and, via its accelerator Axel Springer Plug and Play, Egyptian Streets, that seeks to give an alternative version of events in the Middle East.

While these new media properties show promise, “we are not there yet,” when it comes to monetizing content online, says Schmitz. “How print media is read and consumed didn’t change for 150 years and so it will take time.”

Creating An Ecosystem

Bild, Europe’s largest newspaper with a reach of 11 million, is the furthest along of any of Axel Springer’s print publications when it comes to transitioning to paid online subscriptions. It has converted 265,000 readers within 23 months, which Axel Springer executives concede is not sufficient.

Axel Springer is experimenting with new ways for readers to discover and pay for articles online, acquiring a stake in Blendle, a Dutch company that allows readers to pay per article.

Some of the other investments being made by media companies don’t appear to be obvious fits with traditional publishing but there is a method to the madness, say executives Informilo interviewed.

“What we are trying to do is create an ecosystem,” says Raoul Grünthal, head of the Schibsted Group’s growth activities. “We are not proclaiming that our commercial sites will finance our non-profitable journalism. Journalism is a commercial market and should be. The usage of our journalism sites is very high, people go in to look at newspaper sites many times per day. That creates a huge frequency and loyalty and that is important for the ecosystem.”

The definition of how news organizations bring transparency to readers is being stretched in a positive way by digital properties, he says. “If you look at the many service companies we have, the mission of these companies is quite similar to the mission of an old-fashioned newspaper, bringing transparency to society and helping the individual against large powerful companies.”

As an example he cites Schibsted’s decision to buy Lendo, a Swedish marketplace for consumer loans. “What you have in print newspapers are financial pages that list the amount of interest given by different banks,” says Grünthal. “What we are doing with Lendo is even more advanced because it is not only offering transparency on interest rates, but also helping the reader to make the deal.”

Big data looks set to define the direction of media publishers. “Just as ink and the printing press were the tools of traditional media, so must technology and data science become our everyday business tools and we will need to master them to meet the challenges of global competitors,” Ole Jacob Sunde, Schibsted’s chairman of the board, wrote in the 2014 Board of Directors report.

Start-Up Mentality

The challenge for media companies, as it is for all other traditional industries facing massive disruption, is how to integrate not just technology but a start-up mentality.

“It is extremely important from a cultural point of view,” says Schibsted’s Grünthal. “All media companies with legacy products have a cultural challenge. We are not always the most change-loving organizations so we need these entrepreneurs. Our ambition is not to change them, it is to make them change us.”

Axel Springer executives are faced with the same challenge. To learn about innovation and soak up start-up culture the German media company partnered with Silicon Valley’s Plug and Play Tech Center and opened an accelerator in Berlin in 2013. It invests €25,000 plus mentoring in new start-ups that are able to find a co-investor. Some 55 companies have passed through the accelerator, including fintech start-up Number 26.

Axel Springer also goes to great lengths to give the start-ups it acquires the autonomy to retain their innovative cultures. As a result the founders have tended to stay even after they are no longer required to do so.

Along the way “we learned not to expect culture to run through the barriers that exist between departments,” says Schmitz “We brought start-ups together with the people from Bild and we figured out how they could work together. The advantage to the start-ups is exposure to a large number of customers and on our side it allows us to bring outside innovation inside.”

That kind of thinking is key because as even the most visionary of Europe’s media companies knows there is still a danger of getting scooped on the New, New Thing and ending up as yesterday’s news.

Company Location What It Does Acquirer Stakes
POLITICO Europe Belgium News site about European politics Axel Springer 50%
aufeminin.com France Community-based content for women Axel Springer majority
Business Insider U.S. International business news site Axel Springer minority
Runtastic Austria Mobile apps for sport and fitness data Axel Springer majority
Blendle Netherlands Micropayment platform for single articles Axel Springer minoity
Yad2 Israel Classified ad portal Axel Springer Digital Classifieds majority
Ozy.com U.S. Online news and culture magazine Axel Springer minority
Gruenderszene.de Germany News site specializing in Germany’s digital economy Axel Springer majority
Stepstone Germany European online job portal Axel Springer majority
NowThisMedia U.S. Social video news publisher Axel Springer minority
Bonial Group Germany International network for digital circular advertising Axel Springer majority
Blogfoster Germany Blog marketing Axel Springer Plug & Play minority
Dayima China Mobile menstrual management app used by 10 million women Bertelsmann Asia Investment minority
Bidmanagement / Adspert Germany Optimization of online ads Bertelsmann Digital Media Investment minority
Frank & Oak Canada Online clothing shop for men Bertelsmann Digital Media Investment minority
Mogujie China Social shopping firm Bertelesmann Asia Investment minority
Food52 U.S. Food community, recipes and home products Bertelesmann Digital Media Investment minority
Lagou.com China Chinese tech sector job platform Bertelsmann Asia Investment minority
alaTest Sweden Product reviews, tests and price comparison Bertlesmann Digital Media Investment minority
Udacity U.S. Online education provider Bertelsmann Corporate minority
Pepperfry India Online marketplace Bertelsmann India Investments minority
BroadbandTV Canada Services that help content creators find wider audiences or manage copyright in exchange for ad revenue Bertlesmann Corporate (RTL Group) majority
SpotXchange U.S. Video advertising platform Bertelsmann Corporate majority
StyleHaul U.S. Video content focused on beauty, fashion and lifestyle Bertlesmann Corporate (RTL Group) majority
Xing Germany Social networking site dedicated to business contacts Hubert Burda Media majority
Mode Media (Glam Media) U.S. Social content platform Hubert Burda Media minority
Etsy U.S. Online marketplace Hubert Burda Media minority
UberMedia U.S. Social media application developer Hubert Burda Media minority
Gift Connect U.S. Performance-based advertising network centered around branded gifts Hubert Burda Media minority
Coc Coc Vietnam Vietnamese search and browser company Hubert Burda Media minority
Bimbasket Russia Site that helps parents aid their children’s development Hubert Burda Media minority
Escapio Germany Unique luxury hotel booking site Hubert Burda Media minority
Blocket Sweden Online classified site Schibsted majority
Monsieurdrive.com France Allows consumers to shop online at local hypermarkets Schibsted minority
KickBack Norway Provides cashback to customers shopping online Schibsted majority
Prêt d’Union France Peer-to-peer lending market; matches borrowers looking for consumer loans with individual investors Schibsted minority
www.TV.nu Sweden Digital TV guide Schibsted majority
Hitta.se Sweden Online directory, search and listings Schibsted majority
Prisjakt Sweden Digital price comparison for consumer products Schibsted majority

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