Against all odds: In theory, there was no way for Frettabladid (the free Icelandic newspaper) to make its business model work. When its publisher (a local media group) launched the paper in 2001 it settled for two things that are the opposite of the conventional wisdom of the free press business: home delivery and copies shipped by plane to their destination. These choices where dictated by peculiar local conditions. The 300,000 Icelanders are mostly concentrated around the capital Reykjavik and a couple of significant cities are several hundreds kilometers away, with unpredictable road conditions. On the top of this, almost everyone is commuting by car. Early on, the managers decided their product has to be as good as the paid one — and better than pre-existing free dailies. “We stuck to the basics, said its editor in chief Jon Kaldal at last week Free Press Congress in Madrid. It’s about journalism, and scooping the competition.” Which the paper did.
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Now, the key figures:
-    103,000 copies of Frettabladid are distributed every day (weekend included), which is more than one third of Iceland’s population
-    the bulk of it is delivered in 82,000 homes, i.e. 87% of the 94,000 homes in Iceland
-    10,000 copies are distributed in what is called “neighborhood boxes”
-    11,000 copies in shops and gas station
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Advertisers understood quickly the potential of such penetration rate. From 24 pages in 2001,  Frettabadid has now 64 pages (half of it is editorial). Most of the ads (65%) are general brand type, 20% are classifieds and 15% are real estate and jobs.  “Our classifieds pages are more read than our sport pages”, jokes Jon Kaldal. With a 60% market share for print advertising, Frettabladid’s position seems robust.
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Or is it, really?
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In 2007, Frettabladid pulled-out a revenue of €30m — that is a hefty €100 for every man, women and babies leaving in Iceland — the country enjoys the sixth GDP per capita among the OECD members. (As a comparison — for what it worth — a dominant free newspaper such as 20 Minutos in Spain gets about one euro per citizen). In terms of profit, even though the owner of Frettabladid doesn’t breakup financial results, the 2007 margin was about 11%.  Was. Enter the financial crisis. Iceland, with a highly leveraged financial system, is hard hit.  Just to get an idea: the total assets of the banking sector have grown from 96% of the gross domestic product in 2000 to eight times Iceland’s GDP at the end of 2006. And the largest local bank is seven times more likely to default than the typical European bank. Predictably, the impact has been dramatic for Frettabladid: 50% of its ad revenue has evaporated since the beginning of the year. This year, the paper’s P&L will bleed red ink.
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The looming recession is likely to jolt all kinds of medias, whether they are free or paid for. In the United States, predictions for the fourth quarter are gloomy. TNS is forecasting the weakest holiday season in 17 years as all sectors cut ad spending According to Ad Week, money spent by Procter & Gamble, the nation’s top buyer, was down 8% to $1.6 billion; AT&T is down 16%; Time Warner, down 9%; Johnson & Johnson, down 12%; Walt Disney, down 9%  and Kraft Foods down 7%. And remember, contrary to the Euro zone, the US is not (yet) in recession.
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Media resilience will vary. The global downturn is likely supplemented by a flight to the performance-based advertising model. More than ever, brands will seek to maximize the bang for their rarefied buck. Media that will be good at measuring yields will do better than “shot in the dark” kind of. In that context, Google will suffer less thanks to its affordable text-based, traceable ad system. At the other end of the spectrum, TV is more likely to plunge. As for the print, paid-for newspapers are not good at measuring ad performances. In surveys, they tend to inflate their audience by multiplying the number of readers per copy. (In France for instance, there had been so much tweaking and twisting of audience measurement that absolutely no one gives any credit to the most recent official figures.  This, according to ad execs, will push down the prices even further).  Overall, a decline of 15% to 20% in ad revenue is not unlikely for 2008.
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The free press is in a peculiar situation. As Pr. Piett Bakker (by far the best specialist of the trade, see his blog here)  recalled at the Madrid conference, several markets (Italy, Spain, France) are already saturated with sometimes four or more titles in a single city. “A recipe for disaster” he said.  (He mentioned that, for the first time, the circulation of free papers is actually declining in Europe).
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Undoubtedly, the upcoming recession will accelerate the necessary consolidation of the sector (in other words, the weakest both economically and editorially will fold, some will merge, etc). Having said this, I tend to believe the free press has two assets that could attenuate the effect of a recession — only for the best of them. One is (again) the ad performance: much better that in the paid press (each time I’ve seen an advertiser doing a test based of performance, it scored high). The second asset being the distribution/logistic system. It not always known, but in many instances, free newspapers are much better at targeting and tracking audiences that the paid ones (which have a sick 30% rate of unsold papers every day). This has a tremendous value in itself and advertisers will certainly bet on it.  Having said this, I won’t follow the PressGazette website when it states that “Free papers defy downturn”.  OK, some British free papers such as City AM (in my view one of the best of its league) or TheLondonPaper are still in expansion mode (the former is launching new cities, and the latter enjoys record ad revenue), but 70% of the free titles are still not making profits, and will face hard times, as everyone else will.

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The Inimitable Gallic Way

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In France, press barons and the government are loading the guns for an upcoming offensive against the free press. On October 2nd, president Nicolas Sarkozy launched a national conference on print press. This event is called “Les Etats généraux de la presse écrite” (an historical reference to the times when French kings held public debates to address a national crisis).  The overall purpose is to rework a set of laws and directives issued in the aftermath of WWII. At the time, industrial resources (printing presses, newsprint) were scarce and the government had to step in order to guarantee an equal access to all publishers. What should have been a temporary stimulus plan became a sixty plus year-old de facto system.  Distribution was guaranteed for any publication (French kiosks are swarmed by mediocre unprofitable, short-lived publications) and above all, a closed-shop system has been granted to the main union, the Syndicat du Livre. Indisputably a generous social grant for its membership: in a French printing plant, the median salary for an unionized worker is  €46,000 € a year against €33,600 for a journalist (who is going to work twice as much). To make things worse, staffs are about twice what’s needed to operate a printing press. Altogether, French newspapers suffer from the most expensive production system in the world. The last decade of decline in the French newspaper sector has not seen any major evolution.  In return for the status quo, the main union has become quite cozy with the heads of media groups. Instead being agents of change, media moguls have secured long tenure in exchange for slow motion reforms. Now that the crisis has unfolded, everybody is turning to a government, which spend roughly one billion euro a year (10% of the industry’s revenue) in various aids.  And in the starring role, president Nicolas Sarkozy himself, with his usual demagogue posture.
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In his introductory speech, Sarkozy a set the stage against the free press (which, in passing, is also “free” of any subsidy): “It’s insane to believe that advertising revenue will one day pay for all information: free, is an abstraction, a figment of the imagination. It is the death of the paid press”. As a matter of fact, what is not an abstract view is Sarkozy’s carelessness with the topic. Had his staff done a fraction of the homework required for the subject, this is what they would have found:

-    Many of the best and most respected newspapers in the world such as the New York Times or the Times of India get most of their money  from advertising (respectively 80%and 90%).

-    The reunion of whiners invited last week at the Elysée Palace is giving away an increasing number of free copies. A rate of 30% of free distribution is not uncommon even for the national press.

-    The very same people are conspicuously sneaking a peek at a “hybrid model”, mixing the paid and the free, as do La Republicca in Italy or El Pais in Spain. (In Paris, if you happen to have lunch in the business district, chances are great you’ll have your free copy of Le Figaro).

-    A market without free papers doesn’t necessarily mean a healthy paid press sector. Take Germany for instance who forcefully rejected free newspapers: the average circulation of dailies and weeklies newspapers decreased from 31.4 million in 1997 to 26 million in 2007, a 17% decline. Furthermore, unlike countries that have significant readers (i.e. young) of free papers, young German readership is simply non existent.

-    Again, according to Piet Bakker, publishers of paid papers in fact control 55% of the worldwide circulation of the free press.
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And if any doubt remains about the anti-free press bias of this consultation, the chairman of this workshop is no one else than the fiercest opponent of the free newspapers concept. Bruno Frappat is the chairman of Bayard Presse group and the former publisher of La Croix, an excellent general news daily that enjoys both the highest level of public subsidies of any French paper (quite a competitive field in itself) and the oldest readership (above 65). Welcome to the new world.  –FF

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