Kristine Lowe

Norwegian press saves money by abandoning all attempts at serious reporting on April Fool's Day

'The financial crisis is forcing media to implement unusual cost cutting measures,' the female leader for the country's journalist union has admitted to The Norwegian Office of Enlightenment after the blog's investigations revealed all yesterday's Norwegian newspaper stories to be April Fool's Day's spoofs (via Sonitus) (in Norwegian).

 "This year, all Norwegian newspapers have joined forces to support this model to save our jobs. These are turbulent times and many fear for their jobs, especially the former horse riding news boys who were retrained as ink stirrers, retrained again as printers, reschooled to be scanners, then retrained as culture editors and now preparing to reschool yet again to become Twitter surveillors," the union boss, quoted under a bogus name, says in what must be my favourite April Fool's Day story this year.

At this stage I should probably admit, that in all my single-mindedness, I was planning to use 1. April to speculate about Metro International's mystery bidder and report that the real reason for Peter Chernin's fallout with Rupert Murdoch was how the latter's insatiable appetite for print led him to court the world's largest freesheet publisher, or that the desperate times on Iceland led the archrivals Jon Asgeir Johannesson and Björgolfur Gudmundsson to join forces, team up with the latter's old Russian business associates, and submit a proposal to buy Metro from 1 krone (roughly 10 pence) under which conditions the new company would take over all liabilities and move the headquarters to St Petersburg where Jon Asgeir had sought exile and Putin had vowed to protect him from his debtors granted Metro would expose the anti-Russian bias of Western Press. The Icelandic deal would mean Frettabladid would become Metro Iceland, and Jon Asgeir was also rumoured to look into launching a new range of Russian supermarkets called Бонус.

Or, or, or...but lost between meetings, the lack of superimposed deadlines and an inability to make up my mind about which scenario to put forward, which might have been good seeing how all of the scenarios I had in my mind would only be bordering on funny if you were intimately familiar with this particular part of the media industry, it never happened.

So, big fail on my account there, which brings me back to the Norwegian Office of Enlightenment's spoof (somehow that name reminds me of the Enlightened Tobacco Company which once produced Death and Death Light, the slower death, cigarettes): great stuff (any awkwardness in the translation is down to me and lack of time as I'm preparing for ... another meeting:-) )

Another newspaper bites the dust

Edda Media-owned Sarpsborgsavisa will cease publication 28 May, it was decided yesterday.

The freesheet is the third newspaper in the county of Östfold to see its owners pull the plug within less than seven days. Only last Tuesday, Norwegian newspaper group A-pressen announced it would close local newspaper Moss Dagblad and local freesheet Halden Dagblad with almost immediate effect.

Meanwhile, it is expected Mecom, Edda Media's mother company, will get yet another covenant test extension today - this one to the end of April. The media group headed by former Mirror boss David Montgomery has been struggling to to get its debt back within agreed limits for some time now (last time I checked the lending agreements dictated a debt to EBITDA ratio of 3.25 and 3.75). The sale of Mecom Germany was completed yesterday, but this tidbit from Platforma Mediowa Point Group, one of the two companies who bid for the the Polish state's 49 pc stake in Presspublica, does not bode too well for the price Mecom can obtain from its majority stake in the company.

Freesheets may be in the frontline trenches of this war, but it's only the tip of the iceberg

Yes, freesheets are challenged, but that's down to the collapse in the print classifieds market, and Mecom is hardly the best example of a company brought down by its frees.

In an article yesterday, The Financial Times (FT) suggested the freesheet model could be the first victim of the current newspaper crisis. Now, I'm not sure if I should have a go at FT or Trinity Mirror CEO Sly Bailey here, but this article elegantly skirts around the newspaper industry's bigger, structural problem, and some of its facts are at best misleading.

Freesheets hardly at the heart of Mecom's problems
"...Companies with the most serious threats to their existence have a strong element of free newspapers in their portfolio," the FT article says - and cites Mecom as its first example. This smacks of lazy reporting. The key problem for the pan-European newspaper group headed by former Mirror boss David Montgomery is high gearing or leverage. In short: scooping up too much, too fast at the top end of the economic cycle, using borrowed money to facilitate its acquisition spree. That, combined with operating in a sector which is both cyclically and structurally challenged, makes it the perfect example of the kind of company whose shares are receiving the worst hammering in the current downturn.

Of course the downturn in the advertisement market is hitting Mecom like all other newspaper companies, but I'm not convinced Mecom is the best example of a company brought down by its frees. If you're not familiar how much of its business is made up of freesheets, here's a quick run down:

Mecom's freesheet portfolio
In Denmark, Mecom rushed out a new short-lived freesheet, Dato, at the start of the Danish freesheet war in 2006 - but as this closed in 2007, it shouldn't affect Mecom's 2008 financial results - and still has the loss making youth-oriented free Urban in its portfolio, which recently reduced its circulation to 203,000, but has merged all its content production. In Norway, the British based company has a small network of non-daily frees in Oslo; in Poland, it has Moje Miasto running on a similar model to the Norwegian frees - which leaves The Netherlands, where free newspapers comprises the biggest part of the British based company's operation. Every week its Dutch divison publishes about 8.6 million copies of free door-to-door distributed papers in addition to seven paid for titles.

However, in contrast to UK newspapers, Mecom also has remarkably high subscription rates for most of its paid for papers which must be of some comfort amid all the current advertisement gloom. From what the British company has indicated about its 2008 earnings so far, it seems Mecom is worst affected by the advertisement decline, not in The Netherlands but in Denmark and hardly at all in Poland (I'm omitting Mecom Germany here as it's not big on frees and practically sold - just need the shareholders to approve the sales agreement).

A more disturbing case
Now, it is true that companies with a strong element of free are struggling - it will certainly be interesting to see how Metro International, the world's biggest publisher of freesheets will fare in the times ahead - but rather than Mecom, I would have used Norwegian-based Schibsted as an example here.

Not only because, in contrast to Mecom, it's a market leading freesheet publisher in several big markets, such as Spain, France and Sweden (the latter in partnership with Metro) and, to a lesser extent, Eastern Europe, but because it illustrates the larger, structural problem at work so much better. In a way, Schibsted is also a much more disconcerting example.

It's freesheets, especially in places like Spain where the property market is in a dire state, are being hammered, but that's also happening to Aftenposten, Norway's newspaper of record, a daily paid for national newspaper which traditionally has relied heavily on print classifieds.

That I believe, is the bigger problem qua business models here, at least in my part of the world: we're seeing the market for print classifieds emigrate online and not necessarily to online newspapers. In contrast, Schibsted's other national Norwegian print newspaper, Verdens Gang (VG), which gets its ad revenues from brand advertisement rather than classifieds, has not, at least until new year, done as bad as Aftenposten (though if we're talking circulation decline, the relationship is reverse).

So yes, frees may be head of the queue, or "in the frontline trenches of the war," as Baily says to FT, but national and big regional dailies relying heavily on print classifieds make a good number two. And that's still only part of the story, I'll return to why I think Schibsted is such a disconcerting example in a separate post a bit later.

Welcome to the year of the castrated bull

Before the clock strikes midnight, let me take a moment to contemplate how we are now exactly one month into the year of the castrated bull - and how there's rarely been a year more aptly named than this.

If you're not following my logic, I'm talking about how we entered the Chinese Year of the Ox on 26 January, and, as an ox is simply a castrated bull, and a bull in financial jargon is used to describe  (often overtly) optimistic investors who play hard and take big risks, what better metaphore to describe the year so far.  

This is of course a post I should have written a month ago, and by now I'd thought this metaphore would be all over the place - but my quick google search indicates it isn't so. The closest thing I can find is this piece in The Economist on how China's economy economy is like a castrated bull.

A herd of castrated bulls
Now, I should have had a look at what Lexis Nexis might throw up, but as it's not at my disposal... Why only China? How about Iceland, dubbed the Nordic hedge fund masquerading as a country? How about the countries in Eastern Europe and elswhere tethering on the brink of catastrophe induced by the collapse of their credit bubbles?

How about households all over the Western world staggering under the burden of the credit crunch and debts turned bad? How about companies, not at least in the media industry, who until recently went on massive spending sprees and invested recklessly in expansions and extravagant, some would say meglomaniac, business ideas? How about all those bullish investors, small and big, who banked on the good times continuing forver?

Like a house of cards
From my own beat, Baugur is a name that easily springs to mind. Not to mention the Baugur-funded Nyhedsavisen, or as I wrote last August:

"The very idea of starting a newspaper, a freesheet nonetheless, in a time when experts are overbidding each other to predict the death of newspapers and the demise of advertisement-funded business models - such as Dagsbrun did, backed by Baugur... in 2006 - reeks of hubris. From the beginning and to this very day, when Nyhedsavisen is the most read newspaper in the country, Danish media has been waiting for the construction to fall apart like a house of cards. Enter American venture capitalist Tim Draper and his self-composed tune, The Riskmaster, with this enticing refrain: "He is the Riskmaster, Lives fast drives faster, Skates on the edge of disaster, He is the Riskmaster".

Well, as regular readers know: despite his bullish outlook, in the end Nyhedsavisen was apparently too risky a project even for Draper, the partnership that was to save the freesheet never happened, and the newspaper went bankrupt just a month after that post was written.

Nemesis?
In fact, the story of Baugur and its many spin-offs reads like a classic tale of hubris and nemesis. Now, for some reason I associate the concept of nemesis, or divine retribution, with unjust punishment meted out by capricious gods to stop humans or other creatures, like Promotheus, for striving to be more (educated, enlightened etc) - for things that I've always considered man's greates virtues - but then, I have a feeling my grip on Greek mythology is not what it used to be.

However, the bigger theme that runs through everything I've described so far is one that rhymes all too well with the concept of hubris and nemesis: there is, with so many of the businesses and fancy schemes collapsing around us, a strong sense of a staggering fall, a very humiliating defeat - grand plans gone ever so wrong, revealed to be a house of cards or worse.

It's the abject and bitter humiliation that goes with realising you've been living a lie: you've completely overestimated your ability to handle the debts you've amassed; your bank sold you a ponzi scheme and you failed, against your better judgement, to read the small print; you discover your partner is a jerk and it turns out everybody else knew it, you'd just failed to see the writing on the wall.

The opposite of the bull in financial jargon is the pessimistic bear - analysts will tell you financial markets are cyclical and move in and out of bull and bear phases - but, metaphorically speaking, I think the sentiment of humiliating punishement, summed up in the symbol of the castrated bull, describes 2009 better: castrated the bull is chastised, domesticated, tamed - and perhaps displayed for public amusement as in the picture here - but there's no turning a bull into a bear.

Metro International closes Spanish operation

Bligh me, Metro International has just announced that it's closing down its Spanish operation with immediate effect!

Actually, to be precise, the announcement ticked into my mail account three hours ago, but I only happended to check it now. Is there something I have missed? I must admit that I've been spending this month writing by the seaside and haven't followed the news as closely as I use to, but I didn't see that one coming.

Only, oh... I forget, probably when Metro presented their last quarterly results, Per Mikael Jensen, the company's CEO hinted strongly that a merger was on its way in Spain when I interviewed him, certainly they've been successful creating such partnerships in several of the other markets they operate in, but seems they've been unable to negotiate one in Spain. Next week's results should be interesting.

According to the press release:
Metro International S.A. ("Metro International"), the world's largest international newspaper, announces that it is discontinuing the activities of its fully owned operation in Spain, Metro News S.L. ("Metro Spain"), which publishes the free daily newspaper Metro in seven Spanish cities. Thursday 29th January 2008 was the last day of publication for Metro. Prior to the closure of our Spanish operations, Metro was the fifth most read daily newspaper in Spain with more than 1.8 million daily readers

Per Mikael Jensen, CEO and President of Metro International said: "Despite dedicated efforts from our Spanish management team and staff, it is with deep regret that we have taken the difficult decision to close down our operations in Spain. Even though Metro in Spain has been losing less money than its Spanish free competitors, the worsening Spanish economic down turn, which during the beginning of 2009 has resulted in a collapsing advertising market, has now resulted in unsustainable losses.

"The stiff competition coupled with a forecasted continued weakening advertising market for Spain, makes the closure of our operations the only rational decision at this time. A continued investment in Spain cannot be justified at this point and we are therefore focusing our resources on growth areas where we can create long term shareholder value."

Frettabladid back in the hands of Baugur-led consortium

Icelandic freesheet merger called off as the country's media battle debt inflation.

Now, this is not news to those of you who read Journalisten.no, but I got a bit too busy at the end of last year and ran out of time to do a follow up on this story  for my blog, so here goes:  Jón Asgeir Jóhannesson, the controversial chairman of Icelandic investment group Baugur, recently raised 6,4bn Icelandic Kroner (ISEK), to buy out the media arm of 365media, the company behind Frettabladid.



In October, news broke that the door-to-door freesheet, which is Iceland's most read newspaper, was to merge with Posthusid Arvakri, the company responsible for Iceland's biggest paid-for paper Morgunbladid. This deal was later abandoned due to the latter part's reluctance to take on the added risk of the increased debts of the merged group, said Ari Edwald, CEO of 365media.

Iceland is currently battling a banking crisis and monetary crisis of extraordinary proportions. The three main banks, accounting for about 85 per cent of the banking system collapsed in less than one week and the krona fell like a stone. 60 til 80 per cent of all companies in Iceland are said to be technically broke, and leveraged companies have seen their debts inflated.

"We got more than a billion ISEK more in debts only in October. We had to find a way to refinance our business quickly because we had 1,5bn ISEK in down payments due 5 November," said Edwald.

He explained that Jóhannesson paid 1,5bn ISEK in cash, the reminder of the price was debts he agreed to take over, but emphasised that Jóhannesson is not the sole owner of the new company. "The operation was led by him and he is still the majority owner, but we are working to get other investors on board," he said.

Baugur's role as a dominant media investor on Iceland has been controversial, but Svánborg Sigmarsdottir, a senior reporter with Frettabladid, said most of the freesheet's journalists were just relieved when Jóhannesson put the urgently needed money on the table.

Business angel goes bust

Skype-investor Morten Lund's bankruptcy, following the demise of Nyhedsavisen, is hardly news to the Scandinavians among you, but Techcrunch has an interesting, very sympathetic write-up of the story.

The comments below the story are also worth reading: they make for sharp contrast to the animosity he's often met with in Danish newspaper columns and comment sections, and it was intriguing to see the video of his Le Web presentation which I hadn't heard/seen before.

I've blogged about the Danish freesheet war from beginning to end, including Lund's takeover of Nyhedsavisen, on this blog - it's yet another colourful, and at times unbelievable, tale from the Northern media frontrier that is Scandinavia, a tale deeply intertwined with Mecom's colourful newspaper adventure. For a short summary of the Nyhedsavisen story scroll down to the Icelandic newspaper saga here.

It must be said that the Icelandic part of this story has changed a bit since the latter article was written though (October 08) - in short, the Icelandic freesheet merger was cancelled, and Baugur bailed out the media division of 365media.is. I'll try to get back with more on that soon.  

So it's goodbye to the last newspaper company in Fleet Street

Metro International has just announced it's planning to relocate key operations from Fleet Street to Stockholm by the end of this year, implicitly blaming the move on the financial downturn.

"During Metro's growth period particularly in Europe we have benefited from being located in a media capital such as London. As our business has entered into a more mature state our needs have changed and we have therefore concluded that some of our London functions would profit from being closer to both an operating unit as well as our financial market," Metro's CEO Per Mikael Jensen said in a press release.

I interviewed Jensen at Metro's London offices only February last year, at which point he was talking of employing more journalists in London to build a central content agency, producing content for all of Metro's papers there. How quickly things change.... 

Metro's move from Mayfair to Fleet Street in 2007 was met with appraising nods that print was moving back to  "the spiritual home of British Press". 85 Fleet Street was previously occupied by Reuters, the last major news organisation to move away from the “street of ink” in 2005.  

London, as seen from 85 Fleet Street:

Freesheet merger on Iceland

Baugur-backed Frettabladid is to merge with Posthusid Arvakri, the company responsible for Morgunbladid, it emerged this weekend.

"Under the deal, Frettabladid (see Wikipedia for proper Icelandic spelling) will become the freely distributed sister paper of Morgunbladid, and 24 Stundir (the current holder of that title) will be merged into Morgunbladid itself, which is a paid-for newspaper. The deal will mean the loss of dozens of jobs. The reason given is the dramatic shift in the market with a slump in advertising sales and record prices of printing paper," reports Icenews.is, which has the full news story (my Norwegian report of yesterday is here).

To say that another Baugur-backed freesheet bites the dust, might be an exaggeration, but it does look like the end of Baugur's ambitious newspaper adventure. After all, Frettabladid - the "quality" door-to-door distributed freesheet read by some 70 per cent of the Icelandics each day - was supposed to be the media business model of the future, a concept that would turn the world's newspaper industry upside down when Dagsbrun, with Baugur as its main investor, launched it internationally - with Denmark as the first stop.

The news of Frettabladid's arrival in Denmark caused nothing short of a full-blown freesheet war, with a number of new freesheets rushed out to fend off the new Icelandic competition. It was August 2006, the Icelandics had announced their ambitious plans many months before their new baby saw daylight, so early in fact that all their main competitiors all had new freesheets on the street  before Nyhedsavisen finally started publishing 6 October 2006.

I'm digressing of course; we all know how the Nyhedsavisen saga ended last month. But the project was so ambitious, some would say so overtly ambitious, that the end of the saga seems grim. The freesheet was called reckless, immoral even, by its competitors, seeing how it brought down advertisement rates and earnings for other newspaper companies. Its ambitions, and the atagonism they sparked, almost seem like a classic tale of hubris and nemesis, something that has the making of a proper Greek tragedy. But back, to Frettabladid

It was launched in 2001, drawing inspiration from free publications on the continent. At first it wavered, and one year after its inception it had to file for bankruptcy. But only a few days after the bankruptcy it was announced that a group of investors had bought the publishing rights and publication was promptly resumed.

Initially the identity of the new investors was kept secret but in face of heavy criticism and speculation, it was revealed that Baugur Group, a leading retailer and one of the most powerful Icelandic companies, was among the biggest new shareholders. The exact proportion of its shares was however still kept secret as well as other details about the ownership. The fact that Baugur had acquired shares in Fréttabladid proved to be a highly contentious issue and the criticism was fuelled by the apparent secrecy surrounding the deal (as has been the case with so many of Baugur's deals).

Now the concern at the Saga Island is that the new merger will mean an end to media diversity as it effectively creates a newspaper monopoly (see Icenews.is for more

The Danish freesheet war ends: Nyhedsavisen folds

Last night, employees at Denmark's most read newspaper, Nyhedsavisen, received an email  notifying them that the fresheet was to cease publication as of today.

The news came as a complete shock to the employees at the free newspaper. According to Berlingske.dk, the current majority owner, Morten Lund, approached Metro International  with a proposal to buy its Danish operation - comprised of the recently "merged" freesheets MetroXpress and 24timer - only last week and was rumoured to be preparing an official bid for today. The bid, tough described as "fanciful at the best" by Metro's CEO Per Mikael Jensen, was believed to be financed by American venture capital firm Draper Fisher Jurvetson, recently announced as a major new investor in the freesheet.

Nyhedsavisen was modelled on the "quality freesheet" Frettabladid  that Baugur/Dagsbrun had been so successful with on Iceland. It was Dagsbrun's plans to launch a similar paper in Denmark, backed by Baugur, that forced the "great" Danish freshet war in 2006, which saw a range of new freesheets launched within an unbelievably short span in time (mostly in August).

It did not prove so great for the finances of Danish newspaper companies of course, with as many as five major freesheets competing only in Copenhagen, the Danish capital, for the advertisers gold, the two-year long war turned into a very costly one. Hence the news of Nyhedsavisen closure has been greeted warmly by competing newspaper groups, such as Mecom's Danish arm, Berlingske Media, today.

Nyhedsavisen's management blamed the market downturn and worsened economic outlook for the decision to give up what many have seen as an impossible battle from the very outset. It's estimated Nyhedsavisen lost close to 700m DKK on the venture.  

Update 21:05: Nyhedsavisen's closure leaves Denmark with three major freesheets: both Metro's MetroXpress and Berlingske's Urban predates the freesheet war, while 24timer, the second new major freesheet to be launched in August 2006 (after the now defunct Dato), effectively was acquired by Metro International a while back, and is said to be dragging down the latter's financial results in Denmark.

(NB: Use the tag cloud for freesheets, left-hand side, or the blogbar, right-hand side of the blog, to find more blog posts on Nyhedsavisen, Skype-investor and majority-owner Morten Lund, Draper Jurvetson Fisher, Baugur/Dagsbrun and the Danish freesheet war, which I've blogged about since its inception).  

The newspaper freed from news

This week's news that Bonnier's free daily City would go non-daily from next month on, and reduce its publishing days to Mondays, Wednesdays and Thursday, had many industry experts scratching their heads - not to mention competitors Metro International and Schibsted, now on the same team of course, cheering.

The "new" City will have different themes for each publishing day: Mondays will be devoted to "living", and focus on career, family, relations and private economy; Wednesdays will be "trend-day" and focus on health, fashion etc; Thursdays will be dedicated to the upcoming weekend and have content on entertainment, culture and sport, according to Dagens Media.

One media agancy proclaimed it a great move that should have been made earlier, a move that would make it easier to target advertisement, plenty of others, mostly media commentators, said it was the beginning of the end for the freesheet, Svenska Dagbladet's Martin Jönsson called it a lesson in "the art of almost closing down a newspaper."

For my own part, I can't imagine why I'd want to read a magazine in newspaper format on my way to or from work, when I hardly find time to fit in all the news I'd like to skim through in a normal workday. But then that might just be me, some might find it a welcome distraction from all the bad news the media does tend to have an affinity for.

Nyhedsavisen's "masters of risk"

What do Baugur, Morten Lund and Draper Fisher Jurvetson's Tim Draper have in common? Well, they're hardly risk averse, which is why Nyhedsavisen's new investor seems to be the perfect fit for the freesheet a great number of Danish media insiders think is ambitious to the point of folly.

 

The very idea of starting an advertisement funded newspaper, a freesheet nonetheless, in a time when experts are overbidding each other to predict the death of newspapers and the demise of advertisement-funded business models - such as Dagsbrun did, backed by Baugur and with Lund as an early collaborator, in 2006 - reeks of hubris.

 

From the beginning and to this very day, when Nyhedsavisen is the most read newspaper in the country, Danish media has been waiting for the construction to fall apart like a house of cards. Enter American venture capitalist Tim Draper and his self-composed tune, The Riskmaster (via Berlingske Tidende), with this enticing refrain:

 

"He is the Riskmaster, Lives fast drives faster, Skates on the edge of disaster, He is the Riskmaster"

On the other hand, it is very refreshing to see what these visionaries, so far removed from the mindset of the traditional media industry, will do both with the paper that is their playground, and the Danish newspaper industry at large - provided they can keep the business afloat long enough to break even.

Nyhedsavisen bailed out by venture capital

After weeks of speculations of whether the end was near for Denmark's most read newspaper Nyhedsavisen, it emerged yesterday that American venture capital Draper Fisher Jurvetson (DFJ) had come to the rescue.

 

Even though Morten Lund, the majority owner and previous early stage investor in Skype, said in a press release last week that a new ownership had been agreed, a new "world class" investor would back the paper and the delayed accounts would be handed in, details of the new ownership structure surfaced until yesterday and according, to Berlingske, the accounts were subitted Friday 1/8.

 

The accounts äre reported to be delayed because the accountant demanded that money to secure the freesheet's future had been transferred to a company account before he signed it. DFJ is reported to have invested an undisclosed but substantial sum in Morten Lund's company ML Medie ApS, enabling Lund to increase his stake in Nyhedsavisen from 51 to 85 per cent, while Icelandic Stodir Invest retain 15 per cent. Lund has previously said about £15m (150m DKK) was needed to bring the freesheet in the red.

 

"We are proud to do business with Morten Lund, and since we have been investors in Hotmail and Skype, it's not new a new thing for us to provide a free service to challenge the established market," Tim Draper, the founder of DFJ said in a press release announcing the partnership. "Personally, I'm always looking for something that can turn an industry upside down," Draper said on a previous occasion when asked what kind of ventures he likes to invest in.  

 

How well doesn't that rhyme with what Jon Asgeir Johannesson, Baugur's main man, said in an interview with Börsen, the Danish financial daily (who annoyingly keep a lot of their content locked away behind pay walls), at the very start of the country's freesheet war in 2006:

 

"In the future there will be millions of websites and TV- and radio stations, but there will only be a few newspapers left and they will be a platform for advertisers who want to reach a wide audience."

 

It was always Nyhedsavisen's ambition to turn the newspaper market upside down by challenging the paid for dailies with a "quality freesheet" - modelled on Icelandic Frettabladid. And, despite its financial difficulties, one must admit that by becoming the country's most read newspaper in such a short time, it has accomplished this - though venture capital firms are not known to be very patient investors, so doubts of the newspaper's financial foundation will linger.   

 

Denmark's most read newspaper may be forced to close

Nyhedsavisen failed to hand in its annual accounts on deadline yesterday, which could spell the end for the infamous freesheet, according to Berlingske.

 

Danish media have reported for some time that the freesheet that once forced the costly Danish freesheet war is struggling to find new investors to help foot the bill of running the paper, a prerequisite for part of the management to continue in their roles. The lack of guaranteed future funding is also supposed to be the reason why the accounts are delayed. But even though Nyhedsavisen missed the big deadline, a last minute rescue is still possible.

 

The management has refused to comment on recent developments, but last night the freesheet’s current majority owner, Morten Lund, a former early stage investor in Skype, tweeted: “Today [Monday] was a day beyond aII days (exept having kids) - I have one word for you: WOW!” That doesn’t really sound like a downtrodden and defeated man fighting for his newspaper’s survival, but if the freesheet is forced to close it would be welcome news for main competitors Mecom, JP/Politiken and Metro International. Only yesterday, Metro, which publishes freesheets across the, globe reported a bigger-than-expected 83 per cent fall in quarterly operating earnings, hit by weak sales and advertising, and Denmark was singled out as one of the most problematic markets (Newspaper Innovation has the full figures).

 

Update (15pm CET): news just broke that Nyhedsavisen has doubled its share capital (from 10-20m DKK) by converting debt, which means Icelandic Stodir Invest may have parted with the company and the ownership structure been changed. 'Morten Lund and the Icelandics came to an agreement last night. I have signed the accounts and we will not be liquidated," Morten Nissen Nilsen, the company's MD, told Ritzau, via Berlingske (which means that tweet I quoted might have been key to what's just happened)

 

Update 23/7: in a press release published on his blog (in Danish), Morten Lund said he still holds majority control in the newspaper company, and that the annual accounts will be submitted on Thursday morning.

 

Picture from Morten Lund's (former) blog:

 

SchiMetro International, Metro Minutos and all that jazz

"Did the Norwegians celebrate 17 May by closing the Swedish fool's project Punkt SE? Well, at least the announcement of the closure came on the first working day after Norway's national day, even though the decision had been on the table for a few weeks," wrote Rolf van der Brink in Dagens Media (my translation) in one of several harsh reactions to yesterday's news that Schibsted was buying into Metro International's Swedish freesheet operation and closing its own free paper there, Punkt SE, with immediate effect.

The announcement came as no surprise to the region's media commentators, I've certainly covered the rumours of a courtship between the two media giants on several occasions - like here. What came as more of a surprise was that Schibsted's and Metro's new partnership will be so limited, many investors were hoping for a full-scale wedding, which of course begs the question: what next?

Neither of the two parties refused to rule out that this could be the first, tentative beginning of a full-fledged relationship - that we could see the two freesheet publishers strike similar deals in the other markets where they are head-to-head such as France and Spain. But both parties also emphasised that no such deals were currently on the table.

"We are now entering a freesheet 2.0" phase," said Metro's CEO, Per Mikael Jensen when I interviewed him about the freesheet giant's ongoing strategic review recently, and indicated that this phase would be characterised by consolidation and online expansion (parts of that interview is here). In an interview with Journalisten.dk (in Danish) yesterday, Jensen again promised that new deals were forthcoming.

The world seen from Metro's headquarters, to my best
knowledge the last newspaper company in Fleet Street

Martin Jönsson sums up the situation, and the stakes involved, eloquently for Svenska Dagbladet (freely translated):

In an analysis of the deal, Citigroup concludes that the analysts got what they wanted – at least half way – and that the effect will be remarkably positive. But ideally they would like Metro and Schibsted to go all the way and merge the two companies.

Will it happen?... The business relationship between the two media giants has been about as complex as the average episode of the hospital soap Grey's Anatomy. They have flirted and dated for years, and they have had affairs with others (like Metro's advertisement partnership with GP/Stampen) and lived a hard single life (Punkt SE)... only now was the timing right for a more serious relationship.

The explanation is, slightly cynically put, that they are both equally desperate... Metro... still needs a more stable foundation in order to grab a bigger share of the national advertisement market and expand online. Schibsted, on the other hand, had to find a quick way to end the escalating losses at Punkt SE without loosing its presence in the Swedish freesheet market entirely

But free has certainly been pricy for the Norwegian newspaper giant, writes Daniel Sandström in Sydsvenskan, and there's probably not much comfort in looking back of the kind of battle cries the company's admirals so confidently spouted when Punkt SE launched in 2006....

Baugur's exit from newspapers: much ado about everything

Or why the economic woes of "the Nordic hedge fun masquerading as a country" may not have ended Baugur's newspaper adventure.

A week ago, the executives of Nyhedsavisen, the Danish freesheet launched by Baugur-controlled Dagsbrun in 2006, rushed to denounce headlines that the Icelandic group had sold out of the freesheet that famously provoked the Danish freesheet war. It was all much ado about nothing said Svenn Dam, the CEO of 365Media Scandinavia, the Dagsbrun-controlled company that once owned Nyhedsavisen.

Even though Baugur announced in a press release they had sold their media- telecoms and financial assets to Stodir Invest and Styrkur Invest, and stressed they held no shares in the two new groups, Dam insisted it was just a "restructuring". Morten Lund, an early investor in Skype and the current majority owner in Nyhedsavisen, on the other hand, said this was a non-story as Baugur's top man, Jon Asgeir Johannesen, would be chairman of both groups. Danish journalists who were on the receiving end of Baugur's press release said if this was the case, if Lund and Dam were right, then Bagur had a major communication problem.

Complicated? Well, at least this week's news that Baugur is pulling out of its American freesheet BostonNOW, which was shut down with immediate effect on Monday, couldn't be more straightforward. The bigger question is if this spells the end of Baugur/Dagsbrun's newspaper ambitions though. Does it spell the end of the ambitions to export the 'quality freesheet' concept they've been so successful with on Iceland to the rest of the Western world? Well, I'm not so sure.

The current financial crises could of course spell the end for a company as highly geared as Baugur (though, due to its oblique company structure, we don't know exactly how highly geared), in which case freesheets would be the least of Baugur's concerns. But I have to agree with Lund on one or two crucial points, first: these guys (and gals) "have got BIG balls" (to use Lund's words).

And let's be honest: Baugur/Dagsbrun/Nyhedsavsien, at least in my experience, has been a delight to deal with. A recent poll showed Nyhedsavisen had received what perhaps could be described a disproportionally big amount coverage in Danish media since it launched, mostly negative, something Svenn Dam attributed to a media conspiracy against it.

Now me, I wonder if this wasn't due to the fact that these guys are really good for soundbites. Besides, it's been refreshing to see someone invest so much money in an industry so few seem to believe in (even if it did happen to erode the market for paid for newspapers by drastically reducing their ad revenue, another explanation for why the coverage was largely negative).

Which brings me to the second point it's hard not to agree with Lund on, namely how the newspaper game is a very expensive one. It's also a high-risk game in times of economic trouble, as media is a cyclical industry due to its heavy reliance on advertisment revenues.

I'm sorry for rambling nature of my argument here, got to run to an interview in a second, but as a media analyst I talked to yesterday said: 'we've now seen the end of a very optimistic phase where the economy's been going full steam, which means a lot of ambitions new ventures were launched, competition intensified, and we're now moving into a tougher phase which may or may not be a recession.'

This means two things: overtley ambitions new launches crumble and die; or, and I wonder if this is not the case with Baugur, the company behind those launches, finds a way to reduced its exposure to the risk, making sure they could still cash in at some future, more opportune, point in time...

Picture from Morten Lund's blog published when Nyhedsavisen became Denmark's most read newspaper (which it still is)

Are Schibsted's corporate bylaws dragging down its share price?

Now, here's an interesting contrarian take on what's bringing down Schibsted's share price.

To say that these are not the jolliest of times for media shares would be an understatement. Schibsted, the Norwegian based media group, much praised internationally for its successful online transition, has seen its share price halved since October - from roughly 300 NOK to roughly 150 NOK.

The market consensus seems to be that, like other media companies, it is being punished for its heavy reliance on the mood swings in the advertisement market, and the market is growing doubtful of the viability of its international expansion - in particular its freesheet business. In short: the share is considered high risk as well as cyclical.

But here's another take on this scenario, investor Michael Roessler over at Key Event suggests that "the reason for the persistent market discount to intrinsic value" is that Schibsted's corporate bylaws are written such that majority ownership is not at the 50.01pc level, but at 75.01pc.

In other words, he is saying that The Tinius Trust, created to safeguard the editorial freedom of Schibsted's newspapers, is dragging down the share price.

Admittedly, this suggestion is based on a research report he did in 2005, and by now many of his findings are outdated – Schibsted has largely moved out of TV, while consolidating online, in classifieds and newspapers and expanding in the free newspaper segment – but the corporate bylaws remain. Though Tinius himself passed away in November, it was his hope that these bylaws would be his lasting legacy - and as long as clever inheritance lawyers do not manage tamper with them, it will be, so this still makes for interesting reading (for the full report, follow the link in Mr Roessler's post):

History, Dear Watson
Schibsted in Norway, like Bonnier in Sweden, is a modern implementation of a very old, family-run business. The Schibsted’s have owned the Aftenposten newspaper for 145 years, since 1860.

Mr. Tinius Nagell-Erichson, a member of a branch of the original family, used the cash flow from Aftenposten to buy other papers like Verdens Gang in the 1960’s and was instrumental in introducing the tabloid version.

Mr. Tinius Nagell-Erichson was further instrumental in transforming the private, family-owned business into a holding corporation. Other family members sold their shares in an IPO, but Tinius Nagell-Erichson did not sell.

In what I think he would term an act of duty, he cemented his dominance in the Norwegian national media flag-ship with a 26.1pc ownership and cleverly written bylaws.
At Schibsted, a shareholder majority is not everything above 50pc, but rather everything above 75pc. This corresponds nicely to Nagell-Erichson’s 26.1pc ownership. There is no majority without his shares.

Sell side analysts attribute Schibsted’s lower valuation relative to comparables to “higher perceived risk.” Specifically, analysts cite Schibsted’s “bold acquisitions” as “risky and aggressive.” Danske Securities, for example, argues that a major reason for the,

“persistently low valuation” of Schibsted is the, “higher risk perceived by investors. Schibsted’s relatively high earnings volatility and the stock’s much higher trading volatility are just two examples of this. Schibsted probably confidently expects its valuation to improve markedly and move closer in line with peers’.” – Henrik Schultz, Danske, December 22, 2004.

I believe that this argument is a complete mischaracterization of Schibsted and utterly misses the role of history in Schibsted’s corporate structure today.

First, there is nothing bold or aggressive in the character of Schibsted’s management. Acquisitions at Schibsted are not primarily a proactive, innovative strategic vision for developing the company into the future, but rather a reactive strategy in defense of the threatened markets and their revenues. Schibsted seems to back into its acquisitions when it is motivated by fear...

Even the latest attempt to acquire Alma Media is reaction to threatened ad revenue... Schibsted’s acquisition strategy is not aggressive. It is defensive...

Skype-investor takes control of bet noire Nyhedsavisen

Is it a marriage made in heaven or hell? A marriage of love, convenience or desperation? Last week news broke that Morten Lund, an early stage investor in Skype, had acquired a 51 per cent stake in Nyhedsavisen, the previously Icelandic-owned Danish freesheet.

Ten pence to foot the bill for running a newspaper?
He brought with him a motley crew of other investors, including David Trads, Svenn Dam and Morten Nissen Nielsen from Nyhedsavisen's management, Freeway, the internet company that owns major Danish online portals like dating.dk and arto.dk - even mysterious Chinese businessmen were said to have joined the new board of investors (but let's for the sake of the argument forget about the Chinese).

Rumours also abounded about some clever deal between Lund and Baugur (more about Baugur's involvement later in this post), which would have seen Lund acquire majority control in Nyhedsavisen for roughly 10 pence, in return for taking over the costs of running the lossmaking paper. The freesheet launched 6 October 2006 and Baugur/Dagsbrun expects it to break even in November 2008.

The paper pundits love to hate
Now, don't get me wrong: in terms of readership the irreverent freesheet, modelled on Icelandic Frettabladid, is doing very well. Nyhedsavisen is currently the second most read newspaper in Denmark (with 540,00 readers according to the lastest readership survey), so somebody's got to love it.

I call it bet noire because it's the paper pundits love to hate: according to Denmark's media clergy it's been close to folding since before it launched, and so plagued with money troubles and other troubles that you'd be surprised it hasn't closed months ago.

That is, if you were to believe Danish newspaper headlines... When I talked to Svenn Dam, CEO of 365Media Scandinavia, the Dagsbrun-owned company that publishes Nyhedsavisen, before Christmas, he accused Danish journalists of running a campaign against Nyhedsavisen, suggesting that some newspapers had allowed commercial interests (Nyhedsavisen labelled itself as a challenger to status quo from day one) to influence the way they covered the Danish freesheet war.

The Icelandic invasion
In either case, when the deal between Lund and Baugur/Dagsbrun was made public, some pundits were relieved to see Nyhedsavisen "become Danish", that's always a good thing in this part of the world; not being owned by foreigners.

Now, correct me if I'm wrong, but in all the time I lived in the UK, it didn't seem that foreign ownership was quite such a big deal there, unless of course it was American ownership.

Still, I've heard more than one UK city editor express incredulity over how Baugur, a company from a tiny, remote island, has managed to raid UK high street, scooping up top brands such as Hamleys and House of Fraser.

No wonder then the Danes felt uneasy about the Icelanders invading their newspaper industry with a freesheet specifically aimed at out-competing Denmark's paid-for newspapers (that would be the likes of The Times, The Guardian etc). Nor did it probably help that they supposedly schemed PR plots like these (what a scoop), or that it was a reverse invasion (Denmark ruled Iceland until the Second World War).

But Lund didn't get where he is today by playing it safe, nor by taking the traditional routes, so I think it's a safe bet to predict that Nyhedsavisen will continue upsetting the status quo under his influence. At least, if the media clergy gets it right, until the money runs out....

Jittery markets are risk averse
As for why Baugur has managed to conquer so many prestigious international brands, Lund gives his insight into why he thinks they are so successful on his blog: they've got big balls. Unfortunately, the biggest risk takers are also those who tend to get the worst beating in times of financial turmoil, so there could be rocky times ahead for the private company - now a minority owner in Nyhedsavisen.

The company structure used to work roughly like this: Baugur is the money behind Dagsbrun Media, who owns 365Media Scandinavia, who owned Nyhedsavisen, whose ownership structure will now grow even more complex. For Baugur we could be seeing a move out of cyclical shares in preparation for continued financial turbulence ahead, unless of course the rumours that its subsidiary Dagsbrun has shifted its interest to US media acquisitions is true...

Anschutz not bidding for Metro US, but Metro International is considering divesting titles

Philip Anschutz's newspaper company is not bidding for Metro's US freesheets, despite published reports saying otherwise, an Anschutz's spokesman told Denver Business Journal.

However, Metro International's CEO Per Mikael Jensen recently told me the company currently is undergoing a strategic review where they are looking at what is core and non-core markets for the freesheet pioneer. – Our focus is on improving financial results, said Jensen. To illustrate what we can expect from this strategic review, he cited how the company recently closed a real estate supplement in Stockholm and sold 60 per cent of its Czech operation to a competitor (Mafra). Metro's Finnish operation was recently sold to Sanoma. Jensen confirmed that there was a lot of interest in the company these days and said "It's a bit like being at a ball and everybody wants to dance with you." (more here, in Norwegian). See Piet Bakker's interesting analysis of what might be going on in the company here.

More rumours Schibsted is wooing Metro International

This spring Scandinavian media reported that Schibsted was wooing Metro International. Today, Dagens Media tells us "several sources state that Schibsted plans to buy all, or part of, Metro International." According to the anonymous sources, Metro Stockholm is the prime, or initial, acquisition target. Acquiring Metro Stockholm would put Schibsted in a better position to win the financially draining freesheet war in Stockhom, where Schibsted's Punkt SE currently is competing with Stockholm Metro and Bonnier's City for readers and ad revenues. Both Schibsted and Metro International's representatives refused to confirm or deny the rumours.