IFRA

IFRA: Schibsted wants to become the most attractive media group in Europe. How does that translate into facts? And what are the main challenges to conducting this strategy?

Magnus: It is a vision or rather an ambition. To be more specific, we want to become the most attractive media company for investors, for readers and advertisers and for talents, employees whom we want to attract and retain. This statement is a kind of summary of work we did three years ago to develop a new vision for Schibsted.

Our ambition is very much focused on trying to improve the way we work, the way we develop our position and products, and the way we communicate with our readers and advertisers.

We believe the pace of change in the media market is so fast that we need to radically improve the quality of our organisation and our ability to change.

Our primary focus is on the way we work and less related to the kind of products we offer or which geographic market we cover.

Of course, the challenge is also to develop our media portfolio and improve our brands, but we have realised that the most important ingredient to be successful is our investment in people and to ensure that they have the capacity to adjust to new competition in a changing environment.

It is difficult for a corporate organisation to be specific on what innovative products will succeed, let’s say in five years. What we have to do from the corporate standpoint, is to try to develop the capacity and competence in our different operations where our people are able to adjust to market conditions and innovate.

This also means that we, the top management, have to support decision-makers within our subsidiaries when they launch a project or make a decision.

We have to be able to analyse when things don’t go according to the plan; whether it is due to failure of execution or in the strategy. In the latter case, we, at the corporate level, are also responsible.

If a manager has potential, he or she should be given the chance to continue and grow with the company.

It is very important for us at Schibsted that our people are in an environment that stimulates them to take risks and face challenges. And our people should be evaluated on the way they achieve new developments, not only on mistakes.

IFRA: The top management at Schibsted has been stable in recent years, so you’re talking more about improving the lower level of management?

Magnus: Yes, we have had a stable top management, which has a positive and negative side.

The positive side is that we know our company very well; we have agreed on the strategy and have a long term commitment to the future success of our company.

In our operations, the question is not necessarily related to who we have in management, but more importantly, how do we help them develop their ability to be good leaders and run our subsidiaries.

One example where we have a lot of work to do is to support our sales teams. Newspapers are late in developing a method; they have not been very good at organising their sales in the past 10 years compared to other industries.

There is a lot of room for advancement -- from a situation of receiving orders to a situation where we are actively helping decision-markers to build their media plan. And actually we have many services to offer our customers with print, Internet and mobile.

We need to be better at helping our advertisers to make the best use of our different platforms.

In order to do that, we need to work on our capabilities, which is why even we in top management are committing ourselves to improve our behaviour.

IFRA: Most of your revenues still come from your strong newspaper brands. How do you see the future of those print newspapers, should the publishing model change in the future (stop newsprint, change periodicity, price, offer, outsourcing of certain tasks…)?

Magnus: We have no definite conclusions on where the printed newspapers are headed 15 to 20 years from now. Probably its role is going to be less important than it is now, but the uncertainty in the media market is so high that it’s not worth speculating too much on what the situation will look like in 15 years from now.

Obviously, what we need to do is to continue to invest and bet on the right horses. But the crucial factor is to be able to adjust during the race or the journey.

We invest in our newspapers, and we believe they will continue to make money for many years. They are the foundation of our multimedia company and are essential for building multimedia products. But exactly what will be the balance between print and digital, we don’t know.

We don’t know how we are going to price those digital products, or what the business models will be…we only have some ideas on where the evolution is going.

We know that content on digital media is mostly distributed toward the free of charge model and we see this with certain print products, like with our free papers 20 Minutes or 20 Minutos. But it does not necessarily mean that all printed newspapers will be given away for free, rather we see that in some segments such as business newspapers, people are willing to pay for premium content, even on the web.

We need to stay close to the market and adjust.

IFRA: In recent months you have increased the editorial offer for your print newspapers and at the same time also increased their cover price. Do you believe the mass market media of the future is the Internet and that print will address a more segmented, higher-profile readership, ready to pay more for printed newspapers?

Magnus: It may be that the market is moving in such a direction that the people who are demanding newspapers are the people who need more background information and are willing to pay for it. If that’s the case, we have to support that development, but that is just one scenario.

It’s too early to conclude our course of action in Scandinavia, however, adding content and charging attest to a certain direction. In Norway and Sweden, our newspapers are still mass market newspapers, they have extremely high reach.

The price sensitivity is very normally in our case. If our circulation is decreasing, it’s not a question of price but it is related to the fact that the younger generation migrates from print to online.

The price sensitivity may be important in the next years due to a cyclical downturn in the economy at large. But for the time being, the price sensitivity in Scandinavia is still fairly low.

IFRA: You’ve spent the past few years fine- tuning the costs in your newspaper operation, is there much fat left?

Magnus: Our organisation has a lot to learn from other organisations outside of the newspaper industry. We could learn from their lean methodology to improve workflow, to engage all their employees and to innovate.

In fact, we are about to launch an ambitious new programme that will go on for many years with the goal to improve our capacity for continuous improvement. We have recruited people, some coming from consulting companies, some from other industries, some who have a long history within Schibsted, and we have set up a specific team that will pilot and implement this plan.

This project concerns how we can help employees at every level of the company in their daily work. We could improve our productivity a lot with better methods.

The classical example, without saying that we will copy the model, is obviously Toyota. They are great in management and innovation. As I was saying earlier, the pace of change is high, and we need to have all our employees open to change and contribute with their ideas.

IFRA: You’re in the free newspaper market since 1999: you know perfectly the difficulties and the positive points about this business…With the bad 2008 and 2009 economic perspectives in th

e advertising market, is it worthwhile to persist with that business model?

Magnus: We still believe in the free newspaper business model. The problem is the number of competitors in a given market. This factor defines profitability. If there are too many players, then the level of profitability drops.

In Spain and France we are the No. 1 player, but they are many others that are still hanging in there. If they stay, of course, we will be influenced. So it’s not necessarily the question of the business model as such. It’s easy to enter the free newspapers market, many players are ready to take their chance, and believe in it until they realise that they arrived too late, that it will not be profitable and decide to stop.

The real decisive factor is how long the other players will stay in the market. That said, if we take the case of France, even with a lot of players, we are breaking even and are willing to continue.

In Spain we are cutting costs and reducing our team by 10 percent (30 people), but we are still very strong.

The recent shakeout in many countries, e.g., Denmark, have shown that it is not so simple to be a late entrant, so competitors may think twice before launching new products and moving forward.

IFRA: Is your recent acquisition of a share in Metro Sweden a part of your free newspaper strategy, or more a way to consolidate your position in Sweden ?

Magnus: I don’t think it is true to say that we have a freesheet strategy. We have what we call a media house strategy for each specific country where we operate.

We develop on the basis of brands. Some are our freesheets, like 20 Minutes or 20 Minutos, which act as vehicles to establish ourselves in those markets.

Our success in France and Spain with our classifieds activities would not have been achieved without the presence of our freesheets as a starting point, that’s how we have developed competence, attracted talents, partners, and understood the markets.

It is somewhat different from the Metro International concept. They had a real free newspapers strategy: launching editions in as many cities as possible and as quickly as possible.

Our attitude was to build a presence in a few new geographic areas.

IFRA: But one could say that there are less expensive and faster strategies to implement in a country, like buying an existing media brand?

Magnus: We don’t think so. If you look at what we have invested in 20 Minutes in Spain and France, it’s very little compared to acquiring an established brand. And we also believe that many of the existing brands in these countries have potential problems that we don’t have with our freesheets. And look at the amazing reach and readership of our free newspapers in France and Spain.

IFRA: What about the rumors in recent months that you could acquire Metro International, are you really interested?

Magnus: Theoretically, we should not exclude other acquisitions from Metro, of course, but this would be market-by-market and not buying the group.

IFRA: You have divested from audiovisual activities in recent years. Is it a market that you will leave progressively?

Magnus: That situation was very much linked to our two TV stations, one in Norway and one in Sweden. There was a combination of factors that made us conclude that we should sell our shares.

One reason was the likelihood that broadcasters of free TV were close to the peak of their value due to the market heading towards audience fragmentation in the coming years.

The other factor is that we were in minority positions and had problems getting into a majority position.

It could have been different if we had succeeded in becoming major shareholders; then TV would have been a part of our media house strategy. But as long as we were only financial investors, this was not possible.

But obviously we are looking at how we can leverage our position and ensure that we are engaged in the market of video and living picture. That may be more related to how we should integrate video content into our services, e.g. for online news.

IFRA: How do you explain your success with online activities? There’s a spectacular growth in online advertising, but CPM and revenues are still far from print advertising. How could that improve?

Magnus: The key driver for our online growth is definitely our classifieds. It’s an area where there are still a lot of attractive opportunities; we’re not yet sure how the balance between organic growth and acquisition will be. But it is an area where we are investing our best people and where we are committing to invest capital if the right opportunity arises.

In our other online operations we know that, on the advertising side, there are many challenges. Google is one of them and the cyclical nature of advertising is another one. But we believe at least for some of our websites have a fairly good business model.

VG in Norway and Aftonbladet in Sweden generate good margins in digital advertising. In Scandinavia, readers are making extensive use of websites, and advertisers naturally follow.

Our main challenge is not the CPM price but more importantly the ability to monetise the traffic in all parts of our news site and our verticals.

The advertisers are seeking reach and high numbers of readers, so they favour the front page. They are not yet willing to pay for a smaller reach, even if it allows targeting of more attractive readers.

Specifically on the CPM side, we are working all the time with new technologies to increase value for the advertiser, e.g., behavioural targeting of ads.

IFRA: Does your shareholder structure protect you for leading a long-term strategy?

Magnus: Our shareholder structure is giving us some protection in the way our shares are appreciated on the stock market.

We can be a little bit more long-term in the way we think. But overall we have to perform over time and if our shares are systematically undervalued by the market, then we would have some trouble. But it gives us more room to manoeuvre and we can do more long-term thinking to implement our strategy and take more risks in thinking about new opportunities than a company that is completely open to ownership changes.

We are a traded company with some advantages of a privately held company. We have one major shareholder, which is a trust that controls a strategic 26.2 percent of the company.

If you are to change the bylaws of the company you need more than 75 percent of the vote, so this trust can stop any changes in the bylaws.

The other point is that at the general assembly there is a restriction on how many shares given shareholders can vote for, and that’s restricted to 30 percent.

The combination of the two makes it difficult for an outside “hostile” attack to take control of the company. So it is unlikely that we could continue with a strategy that is not making the most value of the company in the longer term, but it is true that this system is giving us more time than for other media group.

IFRA: You have a presence in many countries but at the same time only 10 percent of your revenue comes from international business …what is the future target and in which part of the world?

Magnus: Ten percent is not the figure we use when we talk about international revenues, for us international is outside Norway…We don’t have a very explicit target on revenue. But you also have to distinguish between revenue and income. If you think of income, the part coming from outside Scandinavia for online is increasing; infojobs.net in Spain, for example, is doing terrific.

IFRA: Spain is the foreign subsidiary where at the moment you have the most employees outside of Scandinavia…

Magnus: This is very much related to an acquisition we did two years

ago, a company called Trader, which operates in classifieds online and print. But we’re closing the print operation as the market moves online, so that the number of employees in Spain will fall this year.

IFRA: U.S. newspapers are facing a very difficult situation, do you think Europe will have the same problems in the coming years?

Magnus: I think there are many similarities between what may happen in Europe and what has happened in the U.S. But I also see clear differences in the situations.

I’m not an expert on all newspaper markets in Europe but I know Schibsted very well. And if I compare our attitude towards how we want to work in the media landscape going forward, I see some clear differences between the way we work and the way most U.S. newspaper companies have been working over the last years.

Very simply put, I think that many US companies have been focusing on making sure that they’re running operating margin around 15 to 25 percent. That has led them to have a too-high focus on cost cutting and increasing the efficiency and productivity, and over time I think they have spent too little on product development, and particularly on digital media development and online classifieds.

Now they are moving in a kind of vicious circle where they are continuing cutting costs: that’s what they’re good at, but people, potential employees, talents, are having less trust and faith in the future of these organisations.

If you can’t attract the best people, I don’t believe you can become the preferred media over time. So they’re moving toward a dangerous situation, and I’m not sure they have sufficient room to manoeuvre going forward.

By contrast I think we have been partly clever, partly lucky, we have gained a strong market penetration in Scandinavia with our newspapers.

We have had the advantage of leveraging the digital media, and transforming our newspaper houses into media houses, as well as attract talent. So it has become a virtuous circle; we’re good and good people want to work for us, because we give them the opportunity to work both in print and online, and in return they are committed to working for Schibsted. I mean, they don’t have the feeling to be part of a sinking ship but more to be part of the future.

This interview was conducted by IFRA Magazine Deputy Editor Valérie Arnould