Free Dailies King Dethroned?

Metro pioneered free commuter newspapers the world over, but now it's falling behind more diversified imitators such as Schibsted's 20 Minutes

by Jennifer Fishbein

When the first issue of Metro hit the streets of Stockholm in February, 1995, many media-watchers scoffed at the concept of a free daily newspaper aimed at time-strapped urban commuters. But since then Metro has spread to more than 100 cities worldwide and has bred scores of imitators.

Now it appears that some of those imitators are beating Metro at its own game. On Oct. 22, Luxembourg-listed parent company Metro International (MTROSDBB.ST) reported losses of $32.7 million on sales of $314 million during the first nine months of 2007. In 2006, by comparison, Metro International posted annual profits of $13 million, the first black ink in its history.

The company admits that it's struggling against competitors in several countries, including France and Spain, where rival giveaway papers have pulled ahead. Even in its original home market of Sweden, Metro has been squeezed by the launch of three competitors since 2002. "There's a huge cannibalization," says Piet Bakker, an associate professor of journalism at the University of Amsterdam who tracks the spread of free dailies.

Rivals Lead with Local News

The competition is fiercest in Europe, where free dailies are widely distributed to commuters in major cities. Bakker says there are now 130 such papers across Europe, with total circulation of about 26 million, up from 11 million only three years ago. In the U.S., where fewer people use mass transit, there are about 40 free dailies with a total circulation of 3 million, he says.

One of Metro's toughest challengers is the free daily 20 Minutes, owned by Norwegian media group Schibsted (SBST.BE). Launched in Spain in 2000 and in France in 2002—at about the same time as Metro—20 Minutes is now the most widely read newspaper in both countries. It has nearly 2.4 million readers in Spain, well ahead of Metro's roughly 1.7 million. And the two papers are locked in a tight race in France, where 20 Minutes has 2.4 million readers, vs. 2 million for Metro.

Analysts credit the success of 20 Minutes to its jazzier visuals and more conversational tone, plus a stronger emphasis on local news. Metro has a higher proportion of international coverage and stories that run in multiple local outlets. "If you put copies of the French, Spanish, and Swedish editions next to each other, you won't see a big difference," says Patrick Bartement, director general of OJD, a group that audits media circulation in France. By contrast, Bartement says, "20 Minutes is very French." Metro also has lagged behind 20 Minutes in setting up news Web sites.

Metro has problems in the U.S., too. Third-quarter advertising revenues were down 5% at its Philadelphia edition and 12% for the Boston version, in which The New York Times Co. (NYT) holds a 49% stake. Ad sales in the New York City edition were up 18%. "The credit crunch in the States, I think, is having an effect," Chief Financial Officer Frank Mooty told BusinessWeek.

Financial Pressure

Also weighing on the company's third-quarter results were severance payments to founder and former chief executive (BusinessWeek, 6/7/04) Pelle Törnberg, who retired in July. Per Mikael Jensen, a Danish television executive who was formerly Metro's global editor-in-chief, will become CEO on Nov. 1.

Chris Spalding, who has served as interim CEO since Törnberg's departure, says the company has hired management consultants to review its strategy. "The readers expect more from Metro as competition has intensified," he says. "We need to move into a more mature business model, without losing the fleetness of foot."

Investors expect more, too. Metro International's Stockholm-listed "B" shares have fallen by one-third so far this year and have lost more than 60% of their value since the start of 2005. They traded up slightly after the quarterly earnings announcement, to 6.45 Swedish kroner ($1.00) on Oct. 24.

Bakker says Metro is in a precarious position because it has no other business to fall back on—unlike 20 Minutes' owner Schibsted, whose holdings also include traditional newspapers, magazines, and TV and online operations. In the battle for supremacy among free newspapers, he says, success may come down to "who has the deepest pockets." Metro International may have to dig deeper to stay in the game.

Jennifer Fishbein is a reporter in BusinessWeek's Paris bureau .