A German Publisher Is Winning the Internet

(Bloomberg) -- Weaving past workers in orange vests and hard hats, Mathias Doepfner struts through what looks like a giant steel-and-concrete bird’s nest in central Berlin, which will become the digital headquarters of German publishing house Axel Springer SE. The building, designed by starchitect Rem Koolhaas and set to open in 2020, is at the heart of a bold bet on a future that has eluded many publishing bosses before him.

Doepfner, Springer’s chief executive officer, envisions a high-tech hub of online brands that will ensure the company’s prosperity and help realize his own corporate construction project: Turning Springer into the world’s most successful digital publisher.

Springer “is creating jobs, it is growing, and it has aspirations to grow even further,” says Doepfner, a six-foot-seven journalist-turned-executive. More than 3,000 of the company’s online media staff will work in the new 13-floor building, bisected by an airy 100-feet-high atrium that he calls “The Valley”—echoing his Silicon Valley-esque ambitions for Springer. “We will prove that digital content is going to be a profitable business with very satisfying margins.”

To succeed, Doepfner will have to outmaneuver the likes of Vice Media LLC and Buzzfeed Inc. in the quest for online readers. He risks a challenge from Facebook Inc. or Alphabet Inc.’s Google, which could tap their piles of cash and deep knowledge of users’ inner lives to get into publishing. And he’ll have to prove that his collection of digital media brands—more than 20 publications including Business Insider, EMarketer, and video clip site NowThis—will not just collect clicks, but deliver long-lasting returns.

The valuation of most digital-media companies has plummeted over the past few years and dozens of companies that built businesses distributing video and news on social media have suffered. Verizon Communications Inc. in June shuttered its Go90 video service after it failed to attract enough viewers and advertisers with YouTube-like mini-dramas and comedy sketches. Former digital-media darling Mashable was sold for $50 million last year, a fifth of its valuation in 2016. And in November, BuzzFeed cut 8 percent of its U.S. workforce after missing sales goals.

Doepfner insists Springer is different. Business Insider swung to a profit in the first half of this year after generating more advertising and subscription sales than expected. In 2014, Springer partnered with Politico to start a European edition of the political news site, which he expects to become profitable next year. Doepfner’s larger vision is to use the “Insider” brand to spin off new verticals such as Car Insider, Travel Insider, or Pet Insider. And he’s open to buying more online news and classifieds brands in the U.S., Asia, Latin America and Europe.

“Journalism is not going to die just because distribution is digital,” he says. “I think the opposite: Journalism is going to be better.”

Doepfner started his career as a music critic and rose to become editor-in-chief of Springer’s Die Welt newspaper, where in 2000 he penned an editorial on the top three priorities of business leaders: “First Internet, second Internet, third Internet.” In the first decade of this century, at a time when many publishers were hoping the internet would simply go away, Springer invested aggressively in online advertising and classifieds—the stuff that made newspapers money. 

Since 2006, Doepfner has sold printing presses, newspapers and magazines while spending some 5 billion euros ($5.8 billion) to buy more than 40 digital businesses, including job portal StepStone, French real estate site SeLoger.com, and ad aggregator Awin. Today, Springer’s digital activities account for more than two-thirds of revenue and 80 percent of profits totaling 646 million euros. The classifieds business generated sales topping 1 billion euros last year, up from 330 million euros in 2012.

“Early on, Mathias understood what the internet means for publishing, and he acted on it,” says Thomas Shrager, managing director at Tweedy, Browne Co., which first invested in the publisher in the mid-1990s and today is the company’s second-largest outside shareholder. “Axel Springer is now a profitable digital business, versus the offline company he started with.”

Doepfner has had his share of missteps. His attempt to buy German broadcaster ProSiebenSat.1 Media SE was blocked by regulators in 2006 on competition concerns. He burned hundreds of millions of euros in an unsuccessful effort to create a mail-order rival to Deutsche Post. And in 2015, Doepfner lost out to Japan’s Nikkei Group in a bidding war for the Financial Times. Doepfner says while owning the FT would have added a lot of value because of its “unique” reputation, he has no regrets that the purchase didn’t happen because Business Insider is performing well.

“I don't see any opportunity to buy another print brand,” he says. “We would rather focus on digital native brands.”

The danger for publishers is that they rely on the likes of Facebook, Google and Twitter for traffic, and their relationship with those giants has been shaky at best. The big tech companies already compete with Springer for advertising. They may also wrestle away revenue from classifieds, with Google’s job hunting tool expanding to the U.K. and Facebook testing property sales, said Sarah Simon, an analyst at Berenberg in London.

“The complexity of the ad tech market really favors the big guys,” Simon says. “All the others, including Axel Springer, are minnows by comparison.”

Doepfner counters that Springer has strong working relationships with big tech shops, noting that Facebook has hired Business Insider to produce clips on business topics. “There is much more opportunity than risk,” he says. It’s unlikely that Facebook and Google would get into publishing because regulators wouldn’t allow it, due to their sheer size, he says.

Successfully bringing Springer into the 21st century would safeguard one of post-war Germany’s most powerful voices. Axel Springer and his father started the company in the late 1940s in the rubble of bombed-out Hamburg and quickly became the country’s dominant publisher.

Springer opened its Berlin headquarters in 1966, a high-rise that towered over the Berlin Wall, representing something of a stiff middle finger aimed at the communist regime on the other side. With its outspoken pro-American stance, the company became a thorn in the eye of the far-left, and the Red Army Faction terrorist group bombed its Hamburg offices in 1972.

In 1969, East Germany’s Stasi secret police detained hundreds of young easterners who rushed toward the wall, convinced by a radio prank that the Rolling Stones would play a rooftop concert at Springer’s headquarters on the other side. And in 1985, the Stasi sent spies to the West to investigate (untrue) rumors of a secret tunnel from the Springer building into East Berlin.

When Doepfner became CEO in 2002, Springer had just booked its first-ever annual loss on rising printing costs and an advertising slowdown following the dot-com bust. Doepfner cut jobs, integrated print and online newsrooms, and pushed into new markets, starting a Polish tabloid that became the country’s most-read two months after its debut.

In Germany, Springer remains best known for Bild, Europe’s biggest-selling daily thanks to its political scoops, witty headlines, and paparazzi shots of celebrities. Yet even Bild can’t outrun the internet: its print sales have plunged by more than half in the past 15 years, to about 1.7 million copies a day in 2017. Doepfner has made up some of that lost revenue with online fees, and today Bild has more than 400,000 web subscribers paying up to 13 euros a month.

From the beginning, Doepfner had the backing of majority shareholder Friede Springer, the fifth wife of late founder Axel Springer. A former nanny in the Springer home who has Chancellor Angela Merkel’s ear, Friede is the company’s controlling shareholder. In 2012, she rewarded Doepfner with a 70-million-euro share package. Doepfner, whose stake in Axel Springer is worth about 133 million euros, has poured some of his wealth into the art world, including a museum on the outskirts of Berlin. 

When Doepfner’s contract expires in 2021, he’ll have been CEO for two decades, but he says he has no intention of quitting. Doepfner is determined to prove that online news can pay, and not just for the new building, soon to dominate a district that before World War II teemed with newsmen. While some of those have been replaced by the robots Springer already uses to write soccer news, Doepfner says the company must embrace technology to survive and thrive. “Why would I stop now?” he says. “The fun is just beginning.”

--With assistance from Samuel Dodge.

To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Rebecca Penty

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