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Oct. 4, 2013, 7:30 a.m.

The newsonomics of 2014 for the German press

A few years ago, the idea of a World After Advertising seemed odd for newspapers. Today, it seems like a rapidly approaching reality.

— In 2011, a German regional media group sponsored the World After Advertising conference in Dusseldorf, at which I spoke. The title seemed a little odd back then. Now, it seems prophetic.

With print ad revenues declining faster in Germany than in the U.S., publishers are pulling out the stops on reader revenue — variations of all-access and digital-only subscriptions. But they are also starting to talk about that very world after advertising.

In Germany, advertising now contributes a little more than one-third of newspaper revenues, on average. With advertising in decline and paywalls going up rapidly, that share will only shrink. So the post-advertising conversation has gotten more public.

In his Spiegel piece — “Extra, Extra: Newspaper Crisis Hits Germany” — writer Cordt Schnibben cites a meeting of industry leaders last spring. There, a large ad agency head told publishers: “Get used to the fact that newspapers will have to make do without advertising revenues in the future.” The money, he said, would go elsewhere.

It’s doing so, quickly. German newspapers and magazines are losing as much or more as 10 percent of their remaining advertising revenue this year, after seeing the same result in 2012. If they are losing almost half of what they had in less than a decade, will they lose another half — or more — in the next few years?

Layoffs, the closure of papers and the shocking sale by Axel Springer of its two regional dailies in Hamburg and Berlin (“The newsonomics of the German press’ tipping year”) have all followed.

Consolidation — on the rise in the wake of the Springer sale and partnership with Funke Mediengruppe — just got another boost today. The Hanover-based Madsack announced it will centralize the national and international coverage of its major regional papers (Lübecker Nachrichten, Märkische Allgemeine Potsdam, Hannoversche Allgemeine Zeitung, and more). One central newsroom in Hanover will serve all. Think of it as Thunderdome East. Marketing, sales, and logistics will also be centralized. As with Funke’s consolidation plans, expect significant layoffs.

That sobering realization about ad revenue now guides the construction of paywalls throughout the country, and even new thinking about ad-free premium products.

“We are starting to ask the question about a paper without ads,” says Thomas Schultz-Homberg, the head of the digital media business at FAZ, or Frankfurter Allgemeine Zeitung, one of the nation’s two leading business dailies, with a daily circulation of 320,000. “What should this cost to run it profitably? What we are thinking is that it is 80 or 90 euro a month. Maybe there will be an audience that is still addicted to the paper.”

That’s a novel idea in its purity. How much would readers — themselves — have to pay to sustain a daily newspaper, without advertising? It’s a question, amazingly, that is starting to be asked in Germany, and maybe soon in the U.S. This week, The Dallas Morning News, in its new approach to digital reader revenue, announced it will offer a digital experience with fewer ads.

In the shorter term, FAZ is plowing ahead with a print/digital subscription scheme similar to those in the U.S. When it debuts its new system in the beginning of 2014, it will offer up a hybrid, metered/hard-wall model. The 30 percent or so of its content that is available in some form elsewhere will be metered content. Seventy percent — its largely proprietary content — will be behind a hard wall.

Why? Germany’s privacy protections offer a unique challenge to metered paywalls. Blocking cookies is far easier in Germany — more like a default — than it is elsewhere. Consequently, 30 to 50 percent of news readers’ reading can’t be easily metered by contemporary paywall systems.

As FAZ goes forward with its plan, it will be joined by major publishers, including Munich-based Süddeutsche Zeitung and national business news company Handelsblatt. That means most major cities will see digital access restricted in 2014, joining Bild, Axel Springer’s leading German daily pioneered that approach this year with a twist, offering soccer highlights bundled with a subscription.

While there is risk in the moves, publishers note, there’s also comfort in the company: “We’ll all go over the line together,” says Schultz-Homberg.

For FAZ, digital-only subs will cost somewhere between 31 and 35 euros, and give readers access to the website, mobile apps, and a daily e-edition. The iPad e-edition, now a standalone paid product, has proven popular. FAZ has signed up 20,000 e-paper subs, up from 15,000 just three months ago, and expects 40,000 such subscribers before the new paywall launches.

Print subscriptions will move up about 10 percent in price — a pricing action consistent with the U.S. experience — to about 50 euro a month. Want it all, print and digital: You’ll pay between 79 and 85 euro a month.

The FAZ plan will be opt-in, meaning that subscribers will have to make an affirmative choice to take the wider package. Success could be in the 3 percent of monthly unique visitors range; that’s what The New York Times is getting closer to as it approaches the end of Year 3. FAZ’s base of e-paper subscribers gives it a good early foundation for all-digital or all-access conversion.

FAZ’s move is noteworthy. Many European publishers have taken halfway gestures toward paid. Often, they charge for mobile apps or editions, but have left their websites open. Most have seen too small revenues driven by that strategy.

The notion of closing the door on free digital — and making the reader/customer proposition clear — is one that seems to conform with the digital buying psychology of our times. Offer us expensive print and free digital, and we slowly move to free. Offer us paid products, smartly bundled and taking advantage of each platform, and we’re now willing to pay. The question is: How many of us are willing to pay? That’s a question that will be better answered in Germany in 2014, and in Years 2 and 3 of many paywalls in the U.S. and elsewhere.

Press people, when they get together at such events as next week’s World Publishing Expo in Berlin, increasingly get the sense that they are in this together. It’s tough to say which press — U.S. or German — is under greater stress at this point. What’s clear is that two of largest free presses in the world are desperately looking for solutions.

Looking forward, the German and U.S. presses share key similarities — and significant differences. What’s in common:

  • Both find their average readers to be aging quickly, in the mid-50s to 60 in age.
  • Ad revenues have been cut by close to or more than half over a half decade;
  • Metro papers bear the worst damage, as the nationals and the locals do a bit better.
  • Print readers are paying more for their subscriptions, but there are fewer of them each year.
  • Still, amid increased cost-cutting, 10 percent-plus margins remain.

If the similarities are clear, so is one major difference. Most of the German press is still privately and family-owned. For the last decade, that ownership provided a bulwark against the intense newsroom staff cutting we’ve seen in the U.S, where now 30 percent of daily newsroom jobs have been lost.

Will German newspapers stick with their traditionally strong funding of newsrooms, which runs as high as 30 percent of overall newspaper costs? Or will they borrow from U.S. models? The top U.S. newsrooms account for about 20 percent of their newspapers’ overall expense, with the average coming in at about 13 percent (“The newsonomics of paywalls, Pulitzers, and investing in newsrooms”).

Currently, 13,000 journalists work in 330 daily newsrooms in Germany. That compares to 38,000 in 1,400 newspapers in the U.S. But the cascading woes of newspaper finances have begun to crack that firewall. What may have once been sacrosanct is now in play.

While paywalls are a dominant theme, the early results of Funke Mediengruppe’s deal with Axel Springer will also draw strong attention. Funke will be cutting staffing, focusing on regionalizing and nationalizing their business and editorial functions. How deeply it cuts — and what results, financially and editorially, those cuts produce — will be widely watched. Will Funke succeed with its substantial cost-cutting, finding a new stability? Or will it, like many of its U.S. counterparts, find that deep cutting simply begets more deep cutting?

As in the U.S., the question of the German press future is one of focus. The Germans have been the leading critics of Google dominance. They are properly concerned about Google’s monopolistic and privacy-depriving reach. In August of next year, the Springer-led new ancillary copyright law (Leistungsschutzrecht) will go into effect, trying to limit Google’s power in Germany. Yet the amount of resources and energy devoted to that battle have clearly diverted publishers from getting on with the digital transition. There’s been too much decrying of the loss of the old world and, so far, not enough creation of the new. Take this semi-tongue-in-cheek assertion from the Der Spiegel piece:

The online user is more dangerous for any journalist than the reader of the printed newspaper. The journalist can hold the print reader captive as soon as he has paid for a newspaper or magazine, often in the form of a lifetime subscription. The online reader is picky, moody and volatile, since the next website, the next video or the next song is always only a click away. And the online reader has two dangerous accomplices: aggregators and social media.

It’s a “them vs. us” view that’s anachronistic. Again, from Der Spiegel, the notion that it’s those selfish web people that are causing all the problems of the press:

The netizen is a media diva, spoiled by the possibilities of the new digital media, bored by analog bundles of text, and by newspapers, which are too expensive for many people’s tastes and stuffed with content that is of no interest to them. The netizen wants a customized product rather than something off the rack, and the digital citizen also wants it to be cheap — or preferably free. The netizen likes Flipboard, Zite, the Huffington Post, Tumblr, TED and taptu.

Talking to younger journalists in Germany, you hear different sentiments. They’ll talk about their daily newspaper management “not getting it,” focusing too much on anti-Google legislation and too little on finding ways to engage with new readers and new markets.

Speaking in Hamburg last week, I talked with a younger journalist eager to learn from American startup business models, the kind that have allowed small outfits like science-oriented Matter to larger operations like The Texas Tribune and the Center for Investigative Reporting to prosper. I asked him about his experience, and he smiled that so far he’d had bad luck. He’d joined FT Deutschland only to see it shut down — and then had the same experience with another publication.

He now hoped to start up a small science-oriented news site. That kind of development is much rarer in Germany than the United States. Foundation funding of journalism — a vital if too small lifeline over the last several years in the U.S. — hardly exists in Germany. The kind of buying coop system that CIR’s developed among California TV, daily newspapers, and ethnic press is difficult to imagine developing in Germany. The two countries’ presses may have a lot in common, but there are still a lot of ideas that would be a foreign concept across the ocean.

APN photo by Winfried Rothermel.

POSTED     Oct. 4, 2013, 7:30 a.m.
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