Axel Springer’s Mathias Döpfner

April 2007

By Anna Carugati

Are newspapers a dying breed? Many in the media world think so, claiming that in ten years’ time or even less, printed dailies will have disappeared; replaced, for better or for worse, by journalism on the Internet.

One media executive, Mathias Döpfner, the chairman and CEO of the German media company Axel Springer AG, begs to differ with this dire prediction. Not only because he sits at the helm of one of Europe’s largest publishing companies, but because he and his editorial staff have embraced the Internet, giving all the group’s newspapers a print version and an online version. And the dailies are happily swimming in a sea of black.

Having successfully transferred the newspapers into the digital world, Döpfner’s priorities are now “internationalization and digitalization”—finding growth opportunities outside Germany and planting the company flag more ?firmly in the digital landscape.

Axel Springer’s businesses encompass newspaper and magazine publishing, tele?vision holdings and online. This portfolio of assets includes Bild—the biggest daily in Europe, with 11.5 million readers each day—as well as magazines and newspapers in Germany, France, Spain, Switzerland, Poland, the Czech Republic, Hungary, Romania and Russia.

The company has also made significant investments in the Internet, ranging from a controlling share of the search engine Idealo to an IPTV unit.

On the television side, Axel Springer holds a 12-percent stake in the German commercial broadcaster ProSiebenSat.1 Media, 27 percent of the regional station Hamburg 1, and 27 percent in TV Berlin. In 2005, Axel Springer made a bid to buy ProSiebenSat.1 Media but was turned down by German media authorities, on the grounds that the company’s market-leading newspapers along with ProSiebenSat.1 would give Axel Springer an unfair domination of the market. Axel Springer vehemently disagreed with this decision and has filed suit in Germany’s high court. Disappointed but not deterred, Döpfner continued with his strategy of diversifying the company, buying a 25-percent stake in the leading Turkish station Dogan TV and a 25.1-percent interest in the Polish commercial broadcaster Polsat.

Döpfner maintains his goal of combining newspapers, magazines and television outlets to create a platform that can shape the digital businesses of tomorrow. Gone are the days when individual media—television, print, radio, film—operated separately and in isolation from one another. In the digital world, one that is hungry for rich media, content providers must be able to supply both text information and moving images. And this is precisely the kind of company that Döpfner  is building.

Axel Springer’s newsrooms generate news of all sorts—breaking news, investigative, lifestyle, sports, entertainment—that can be divulged on many different platforms such as the Internet, mobile phones, and who knows what other devices down the road.

The strategy is paying off. According to 2006 preliminary results, consolidated group revenues amounted to ?2.38 billion ($3.1 billion) in the past financial year, compared to ?2.39 billion in 2005. The group improved its EBITDA from ?338 million ($445 million) in fiscal 2005 to ?374 million ($492 million) in 2006.

Döpfner’s knowledge of European markets and expertise in media are considered so valuable that Time Warner has tapped him to sit on its board. He shares with World Screen his vision of the digital future.

WS: You have told shareholders that you have two main goals for Axel Springer: to internationalize and to digitalize. What steps has the company taken toward reaching those goals?

DÖPFNER: There were several steps we achieved last year. We have always said in order to achieve our goals we have to take organic and nonorganic steps. We acquired minority stakes in Polish and Turkish TV stations: 25 percent in Turkey in Dogan TV and 25.1 percent in Polsat. Both countries are interesting growth markets and both TV stations are extremely well positioned. These are attractive investments as such, but the more important logic behind them is to get access to video and moving pictures. The general conviction is that for the digital products of the future, which all contain rich media, meaning a combination of written information and video, you should have access to TV assets and video-content providers. Otherwise, you are always dependent on third parties. We think that we have achieved this in Germany with our 12-percent stake in ProSiebenSat.1, with our shareholdings in regional TV stations and with our newly launched IPTV company. Our goal is to reach this position in the markets outside Germany where we are active or where we want to become active. These are two important and organic growth steps—the TV stations in Turkey and in Poland help us reach both our digitalization and internationalization goals.

WS: Are you also investing in print assets outside Germany?

DÖPFNER: We acquired the Jean Frey group in Switzerland. It’s a magazine publisher with special-interest magazines and three main assets: a business magazine, a newsmagazine and a TV magazine. Since we were already active with business magazines in Switzerland and we have TV magazines in Germany as well as in Switzerland, there are synergies to be exploited. So this was a nonorganic move that served our internationalization goals.

We are only acquiring print assets where we see potential to develop the brands into online business models, and we think this is a good fit with our international online strategy.

WS: What is your main focus in the online and TV world in Germany?

DÖPFNER: In the online world we bought 74.9 percent of the search engine Idealo, [which] is already profitable and extremely successful. We invested in our real-estate website immonet.de, because this is growing and gaining market share. To support that, we launched an IPTV unit in Germany. That had big strategic importance for us, because it really provides an “early mover” advantage—we are the first publisher in Germany investing in that future business. Long term, this can be a completely new way to act as a TV and online player in the German TV market without regulatory restrictions. As you know, we tried to acquire ProSiebenSat.1 and were turned down by the German [Federal] Cartel Office.

So these are some of the highlights of last year, and you can see that we are trying to achieve both internationalization and digitalization. But if you were to ask me what is the priority, I would clearly say it is digitalization and the internationalization is a nice growth potential; digitalization is a kind of existential challenge because a media company that has no digital strategy and is not developing the digital distribution channels of the future with new working business models will never succeed.

WS: Would you look for TV stations in other countries?

DÖPFNER: In general, our acquisition strategy is opportunistic. We don’t believe in geostrategic acquisitions because that leads to overpaid transactions. But clearly investing in TV assets in the markets outside of Germany where we are already active in print business is a priority, no question, but also in countries where we see an attractive growth potential.

WS: On what points were you not in agreement with the German Cartel Office when it denied you the right to acquire ProSiebenSat.1?

DÖPFNER: It’s a long and a complicated story. We think the decision is wrong; that is why we have filed an appeal against the prohibition of the Cartel Office. We want to achieve legal certainty for future acquisitions.

But no matter how the courts will decide in the future, the deal opportunity is gone. Which is very unfortunate, because if you look at the conditions of the current takeover of ProSiebenSat.1 by finance investors, there was a gap of nearly ?2 billion in the valuation basis, which shows how attractive the price was that we had agreed on.

WS: Will the fact that you were not able to acquire ProSiebenSat.1 make it more difficult for Axel Springer to compete on a global scale, given so many media companies have to be huge in order to compete successfully?

DÖPFNER: The only honest answer to your question is yes, it will make it more difficult, but not impossible! [Laughs] There are different routes we have to follow now, and they will lead us faster to international growth, so this is an advantage. The end objective is to establish a cross-media company—print, online, TV. Had we been able to acquire ProSiebenSat.1 there would have been the disadvantage that we would have been even more exposed to the German eco?nomy, but it would have strengthened our position in Germany. Now the other route we are pursuing is leading to a more independent balance of the company revenues and profits with regards to the German economy because we have to internationalize faster. So both scenarios have advantages and disadvantages.

WS: What’s the state of the advertising market in Germany now?

DÖPFNER: It has suffered; it is now improving. In the second half of last year, the market was up about 1 percent net. In our company, advertising revenues were up 3 percent net. The forecast for this year is 2 percent net growth, and we are motivated to outperform the market again.

WS: In the U.S., some say there will be no more newspapers in ten years. Is the situation the same in Europe?

DÖPFNER: We have the same discussions. I think there is exaggeration and desperation at the moment that is not appropriate. Of course we see the structural challenges, there is no question, but in 1990 there was the famous prediction of Bill Gates who said, “In the year 2000 there will be no more newspapers anywhere in the world.” We all know that in 2000, newspapers were making the highest profits in history. I can only assure you that at the moment we are not only generating the highest profits with our newspapers in the history of our company, but also we are making money a lot faster with our newly launched newspapers.

I will give you the example of our Polish activities. Three years ago, we only had magazines in Poland. Then we launched a tabloid newspaper, which was expected to sell 300,000 copies after three years and be a market leader in the tabloid sector, where the biggest tabloid was selling 280,000. Instead we sold 500,000 copies right from the beginning, and ours was by far the biggest newspaper in the country. And the most fascinating thing is, in less than two years after the launch, the paper broke even and is now making money. Can you give me an example in the last 50 years, anywhere around the world, where a newspaper made money less than two years after its launch? I don’t know of one.

Last year, we launched a quality newspaper. We wanted a circulation of 150,000 and now we are selling more than 200,000 copies, so this is also outperforming our business plan. And now, only three years after entering the market, we have a 44-percent market share in Poland, which clearly shows, it really depends on what kind of newspaper you are making, how you are positioning it together with online activities. A newspaper launched today is a combination of online and print. We use the online to cross-promote the print, and vice
versa. And if you do that properly, then I think newspapers can be a very profitable business model and have a future. They have to change and you have to adapt and to accept the full customer orientation, and of course you have to add new features.

I’ll give you another example: what our newspaper Bild, our most important brand, learned from the online world, about user-generated content. We have a Reader’s Reporter section and our editors are receiving photos every day from their 12 million readers. Even if you assume that most of it cannot be printed, there remain some incredible news stories or spectacular photos, so they are generating attractive content from their readers. This is helpful to the newspaper-readers relationship. It’s rejuvenating the newspaper—the readership is getting younger every year. I really think it depends on how you are managing the news?paper business. If you are doing it right, it can be very profitable. In Germany, there are still 330 independent family-owned regional newspaper publishers; most of them are generating margins of more than 15 percent. So we think one should be careful not to bury the newspaper business too soon!

WS: At the World Economic Forum, Bill Gates said that TV will be dead because the Internet will kill that, too.

DÖPFNER: He will be as right as he was with his first prediction. I don’t believe that free TV is going to die. The Internet and free TV are two different things. User-generated content is adding a completely new category of content. It is also developing a new consumer habit, no question. It will play an important role and I can tell you we embrace it and we think it is a great business opportunity. But the “guided” content where journalists are making decisions and the type of journalism that is establishing mass platforms where people are coming together to see and talk about the same content and the same story or film, will play a role in the foreseeable future as well. People don’t want to make decisions all day. They don’t want to actively create video or generate stories all the time. There is a need and a desire for that, but there is a need and a desire for “guided” content where you just sit on your couch and get it from other people.

WS: Have your newspapers been able to move some advertising online as well? Is that growing?

DÖPFNER: Yes, absolutely, our online advertising is twice as much as the German market, which is still very small. German online revenues are still just 2.5 percent, and in our case it’s at nearly 6 percent, which is what I will call a starting point. It’s not enough but it will grow, and we are able to move advertising from print to online. Having said that, look at the current figures of the classified ads in Germany. Everybody, myself included, two years ago thought that this was completely a vanishing business and would completely shift to the online world because the product advantages are so clear. What we see now is an increase of classified revenues of more than 20 percent in some newspapers compared to the previous year. So it shows the user is a little bit more conservative than people think, and there are still advantages in using print information. They are using both the newspaper classifieds and the online versions.

WS: As a content producer, what do you think of the electronic tablets that can store dozens of books, newspapers, magazines, etcetera?

DÖPFNER: As a content generator, I believe in the sustainability of our content categories, which now have a new ally or sister, shall we call it, in user-generated content. But the guided content—newspaper journalism, magazine journalism, will remain. I’m deeply convinced of that.

People love storytelling. They wanted to hear stories 1,000 years ago and will continue to want them 1,000 years from now.

The question is, in 50 years, will this written information still be transported on paper? I doubt it. Within the next 25 years at the latest, we will have an electronic paper that is really a mass-market product that is extremely thin—you can fold it, you can roll it, you have a high-resolution screen, you have a touch screen, it’s really easy to handle and relatively cheap, and you have all the qualities of ordinary paper but you have a device that you can take with you and that you can use everywhere to receive the magazines or newspapers you subscribe to, to get your online platform of a certain brand you like, and go to your online community and read user-generated content. That will be the future, and if some day it becomes a successful mass-market device, then I can only tell you that for our business model that can only be great news. Because print costs, paper costs, color costs, and every form of distribution cost will go down dramatically, but the substance of our business model—content for different consumer categories—that will remain. So to me, this technological change offers a lot more opportunities than threats.

WS: You sit on the board of Time Warner. What is your relationship with Richard Parsons, and do you have plans to do things together, besides enjoying wines from Tuscany? [Parsons owns a winery in Tuscany.]

DÖPFNER: That is perhaps the extent of our joint activities! In a way it’s a precondition for a board seat that we have only a very insignificant percentage of common businesses. So you should not see it as a kind of strategic marriage between Axel Springer and Time Warner. You should see this as Time Warner being an international media company. I’m the only European on the board of directors of Time Warner. That is a clear signal that Europe offers potential and is important for Time Warner and they want to show this with a board seat. They want my European expertise, experience and network to benefit from that at the board level.

On the other hand, for me it’s a great opportunity to learn from the biggest media company in the world in a media market that is clearly three to five years ahead of the European and German situation. So I would say it’s an exchange of experiences and not a strategic marriage that implies we are doing joint ventures together.

WS: The stock prices of some of the major media companies, as in the case of Time Warner, are not very high now. How can a media company reassure the financial community at a time when technology is advancing rapidly and creating uncertainty about how content will be delivered and received in the future?

DÖPFNER: Axel Springer’s stock has more than tripled since I’ve joined the executive board, and so even in these tough, uncertain times media companies can perform very well. Our philosophy is that we are content providers and there is no media-business model in the world without great content. It simply does not work. You need the content, you need the information, you need the pictures, you need the stories to tell, and if you don’t have that and if it’s not well made by professionals, there is no business.

So in our core business we are a content company, and we are platform and technology neutral. I don’t care what the technology or what the distribution channel is. It is our duty to follow trends very closely and to be up to speed so that we are always ahead of the game and that we are following the right priorities with regards to our distribution strategy. Of course it is a moving target, I agree. But what I can tell an analyst is that in a lively economy, technology is advancing and changing priorities in other industries as well.

The only difference is that we are so used to change and so sensitive to the zeitgeist and social phenomena in the society, that it is likely we are adapting more quickly than other industries, say, the steel industry or the automotive industry or the banking sector.