Why publishers don’t publish anymore when they go digital



Axel Springer’s bet on digital is clearly paying off, as we wrote this morning: for 2012, the company posted record earnings. More importantly, the share of digital revenue was larger than the revenue derived from the (previously core) publishing activities for the first time. Most of Springer’s digital properties, however, don’t deal in content – most are real estate and job listings.

A blog post by Frederic Filloux at Monday Note sheds light on how publishers are executing their ‘digital pivot’. Filloux worked at that other digital powerhouse, Norwegian publisher Schibsted for ten years, and he is clearly very well informed on their strategy and financials.

Filloux starts by describing a meeting in 2005, where Schibsted executives laid out their criteria to decide whether a listings market was already mature or still interesting to invest in:

1. Classifieds draw huge amounts of traffic

Schibsted had figured out that “the number one player in the field ranks systematically among the top 10 websites, regardless of the category”, says Filloux. Also:

2. Due to marketplace effects, the number 1 is a lot bigger than the number 2

As Johannes Reck said here recently, competing against a marketplace is very, very difficult once it is established. As he put it: ‘Ebay is doing a shitty job, but no one managed to dethrone them yet.’ This is because sellers look for the marketplace with the most buyers, and buyers look for the marketplace with the most sellers.

3. The number one takes a huge part of the profits

The strong ‘”marketplace” effect starts a loop that reinforces itself over time, and that also puts pressure on the profitability of the number two because it incurs much higher marginal costs.

Armed with those facts, Schibsted took a look at France, says Filloux, and noticed that the market was not mature at all at that point. The number one free listings site was not yet in the top 10 of the Nielsen ratings. Which means that the market “was up for grabs”. So Schibsted grabbed it.

From that meeting in 2005 came an investment in Le Bon Coin, a joint venture between Schibsted and Ouest-France. And it paid off, just like the Norwegians had predicted. Today, Le Bon Coin is the #5 website in France, right behind Google France, Facebook, Google and YouTube, according to Alexa.

Ouest-France sold back its stake in Le Bon Coin to Schibsted in € 400 million. Today, says Filloux, it’s easily worth twice that much. It brings in € 100 million in annual revenue, with a margin of 70 %. The margin is a bit lower than Tripadvisor’s famed 98 percent margin (see graph), but still, it’s great money.

Metric

30/6/2012

30/6/2011

30/6/2010

Revenue (millions) $197.1 $169.2 $125.41
YOY change 16.49% 34.92%
Gross margin 99% 98% 99%
Selling, general and administrative 42% 37% 34%
Operating margin 42% 50% 52%
Net profit margin 27% 32% 32%

Apart from LeBonCoin, Schibsted operates about 20 listings sites. A few of them are mature businesses, but they also have a sizable number of startups in their portfolio. These are nurtured and grown under close scrutiny of Schibsted HQ.

They even have this picture that essentially tells them: how much classifieds money is coming in in the next few years? Best open a few new bank accounts, because it looks like it might be a lot.

So this is why publishers like Axel Springer and Schibsted buy classifieds rather than online content properties: because they no longer need journalists and content to deliver the ad payload.  Users create the listings for free and draw the traffic that they can sell to advertisers. That’s like a shareholders wet dream.

Of course there is no journalistic activity that can compete with a 70 % margin. With the ad rates where they are today, you’re lucky to break even. Business Insider, which brought in 180 000 unique visitors per month per journalist in 2012 – for a total of a staggering 23 million pageviews per month – was break even in 2010. No sorry, that’s not correct. They made a profit: of $ 2 127.

Read more: [MondayNote]

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About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist at Humo whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning post before starting Whiteboard in 2012. He profiles entrepreneurs and businesses and loves to chat on Twitter, Linkedin or Skype (rafweverbergh).

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