Global Economics

German Media Rushes Online -- at What Cost?


Publishers want Web advertising dollars, but neglect of their print businesses is hurting the quality of journalism

Out of fear of missing out on the future the Internet offers and the Web's rising advertising revenues, publishers are neglecting their traditional newspaper and magazine businesses. In the process, quality journalism might just get left by the wayside.

Maybe it wasn't a very good idea -- that's quite possible. Perhaps Uwe Kn?pfer simply had too much faith in the Internet when he started "Onruhr" half a year ago. The former editor in chief of the Westdeutsche Allgemeine Zeitung -- one of Germany's largest regional newspapers and published in the industrial Ruhr Valley -- wanted to create a daily newspaper online for the region. Everything was supposed to be run just like a local paper from the good old world of Gutenberg -- only the final product would end up on a computer monitor instead of a printing press.

In the beginning, Kn?pfer talked a lot about the future. Now it's difficult for him to keep up the morale of his unmotivated editorial staff, and his dream of a journalistic future on the Web might soon be over.

There's not enough money. Kn?pfer is presently negotiating yet again with someone willing to back his project financially. He's already trimmed the editorial coverage -- a move that has caused the number of daily readers to shrink and stagnate at a few thousand readers. He desperately needs money for advertising to make people in the Ruhr Valley aware that his site even exists. Kn?pfer thought it would all be so much easier. He is occasionally plagued by doubts.

But there's no room for such thoughts at many publishers. After the Internet bust in Germany five years ago, many companies are once again making large investments according to the slogan "online first." As companies like Google go on a global shopping spree, German publishers are doing similar things on a national level.

Holtzbrinck and Axel Springer are in the lead in lavishing money on online operations. Whoever isn't doing likewise is considered to be missing the boat. Online business is booming. And it's not only the prices for purchases that are skyrocketing. Budgets for online advertising are also growing at a breathtaking pace. The money to be made via the Internet is there for the grabbing -- or at least it will be eventually. Every publishing executive who considers himself or herself a player wants a part of the action.

And so there's a slowly building flow away from print. First readers left and then the advertising followed. But the flight from print is quite often also a retreat from solid journalism.

It's not particularly easy to make money from news and information on the Internet. That's why firms like Holtzbrinck, Springer and Burda currently prefer to run price-comparison sites, health portals and hotel-rating sites. There's more advertising for such operations and therefore greater revenues.

The latest highpoint of the online feeding frenzy happened in January, as Holtzbrinck took over the student networking Web site StudiVZ for 85 million ($114 million). Its income? Almost nothing. The Stuttgart-based publisher has acquired some 15 firms over the past 18 months, including some odd ones like the rental portal Erento. People offer rentals for such goods and services like RVs and strippers, which can searched for by location, bust size and hair color. For the publishing house that prints authors like Martin Walser and Thomas Mann, it's pretty unusual activity, but it's not alone.

Since last year, competitor Burda has been operating an online community specializing in nightlife going by the name Nachtagenten. The Munich-based firm invested more than 65 million alone in 2006 in Web outfits like gaming site Gamona and the vacation portal HolidayCheck.

Berlin's Springer Verlag also seems interested in almost every type of Internet company there is these days -- regardless whether they're for sell or not. After Springer CEO Mathias Döpfner made digitalizing the publisher a priority, his investment experts have been evaluating some 300 to 400 companies as acquisition prospects a year. The firm took over the majority of Zanox, a company that handles Web-based advertising for such clients as BMW or Jamba, only last week for 130 million.

"The main issue right now is the question of making money with Internet operations. Journalistic standards are being partially sacrificed," Michael Grabner, deputy chairman at Holtzbrinck, said at the beginning of the year.

At the moment, Grabner is hunting for more online targets from his office filled with antiques in the center of Vienna. The 58-year-old spent some 15 years at Holtzbrinck managing newspapers like the respected business daily Handelsblatt and the regional paper Saarbrücker Zeitung. He also came up with new print products such as the low-cost newspapers 20cent and News.

He regularly dismisses the old guard of the German publishing industry as simply trying to defend its old crumbling empire. "There's a revolt when a chess corner is placed in a newspaper," he complains. During his tenure at Holtzbrinck, the print man argued the Internet was an opportunity for newspapers. But there are ever fewer fresh ideas for an old business.

Content hasn't been king in the new shiny Internet world for some time now. The new credo is simply reach. The most important thing is getting page views regardless where they come from. And only those understanding the "Internet's total ecosystem" will be able to make money in cyberspace, says Burda manager Christoph Braun.

Holtzbrinck man Grabner knew that times had changed at the start of the year. The head of the publishing house, Stefan von Holtzbrinck, poured hard-earned money made from books, newspapers and magazines into the student online platform StudiVZ, making the site's young founders extremely rich. Grabner isn't against the purchase in principle, but he is opposed to jumping on the online bandwagon without knowing where it's going.

"Good print innovations, as far as risk and return are concerned, are certainly not any worse than fragile online investments," he says.

Print remains the most important revenue source for publishers in Germany -- accounting for over 90 percent of turnover. Print is their core business -- yet it receives a negligible amount of their attention. While publishers outbid each other with investments in online business, they rarely try anything new in print. Stefan von Holtzbrinck recent paid for the weekly paper Die Zeit to resurrect its magazine insert, but otherwise not much is happening.

The national daily Süddeutsche Zeitung has put its plans to launch a Sunday edition on ice. Several of the paper's shareholders holders are trying to sell -- possibly to a financial investor -- and the publishers there have other worries at the moment.

Over at the Frankfurter Allgemeine Zeitung, another major national German daily, the company is trying to determine whether to try a weekly magazine supplement or not. The managers there say advertising for print is simply too uncertain for the next few years. The editorial staff has also been working on a long overdue revamp of the layout for quite some time.

But at least Germany's major publications are running in place. At many regional newspapers there seems to be deeply set apathy despite declining circulation. Before a paper tries a to make a truly courageous step, for example, like changing to a handier tabloid format like publisher Alfred Neven DuMont is currently doing with the Frankfurter Rundschau, it has to first be financially and editorially ruined.

"Most publishing houses are still doing too well, the pressure and pain isn't bad enough," says Andreas von Buchwaldt, a management consultant for OC & C.

In Germany, many are currently discussing the decline of newspapers. Philosopher Jürgen Habermas recently suggested in the Süddeutsche Zeitung that it might be a good idea to implement state subsidies for print journalism in order to save the country's cultural institution, the daily newspaper.

The numbers aren't very encouraging. Between 1991 and 2006, the circulation of German daily newspapers shrank by 12 percent. Sales dropped 17 percent from 2000 to 2005 alone. The reach of online media in the age group 14 to 29 is already far higher than that of daily newspapers.

And who really wants to shed a tear for old lady print when her younger cousin Internet is just staring to blossom? "Print is dead" is the motto for many fatalists in the sector, who hope a solution to the papers' problems can be found on the Internet. However, up till now there hasn't been much encouragement for their hopes.

Some publishers appear to be trying to shed their fears of the future with the battle cry "online first," which means putting the news on the Net long before it will appear in tomorrow's paper. Springer's flagship daily paper Die Welt has even created a joint newsroom so that print and online can learn to love each other.

Die Zeit Editor in Chief Giovanni di Lorenzo is critical of this approach: "You can't do online as if it's print in an Internet format." He prefers only selectively putting articles from the paper online. "Otherwise you weaken print without really using the strengths of the Internet."

Commercial successes in Germany have been few and far between. It's just not easy to make money with online journalism. Only a few -- including SPIEGEL ONLINE -- have managed to do it. News simply isn't a rare enough commodity on the Internet that users will pay for it. "As long as there's a surfeit, there won't be a market of news on the Net," says Isaac van Deelen of the consultancy Timelabs.

Most attempts to make money from online articles have failed in Germany. But even the strategy of giving information away for free while trying to finance operations exclusively through advertising ends up working for very few. According to a Timelabs' survey, the Web sites of publishers account for only 16 percent of total online advertising spending in Germany. The digital dollars are flowing elsewhere. Google Deutschland has a greater turnover for online ads than all of the German publishers active on the Web put together.

And it doesn't help to simply put the news online faster. That just makes tomorrow's paper look that much older. "The newspapers can't live without the Net and they can't live with it," sums up van Deelen.

Die Zeit's Di Lorenzo urges the print community to have more self-confidence, even when the newspapers will continue to feel the heat from the online world. Instead of worrying about their impending doom, they need to concentrate on the advantages of the printed word.

"When it comes to change, we print journalists are always much too conservative. We have to try different things more often and react more quickly to a market that changes on a quarterly basis," says di Lorenzo, while pointing out that readers have also become more discerning. "They expect a lot for their money."

That's why he calls for more support from publishers for their print operations: "The motto 'online first' or the message that print is only a transitional medium are lethal advertising for our own product and fundamentally wrong. We still make good publications with good returns and a lot of prestige for their owners."

But journalism won't have an easy time in the future regardless whether in print or online. Newspapers and magazines will continue to suffer as younger people read them less and less and many Internet publications will sacrifice quality to cozy up to advertising customers.

It doesn't come down to the question of print or online. It comes down to a question of survival.


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