Monday Note

Within two weeks, the French newspaper Le Monde will run out of cash. By this Monday at noon, candidates to the takeover of the most prestigious French daily will have disclosed their offers. By June 28, the staff will vote and make the final decision for the fate of the 66 years-old paper.

More importantly, the newspaper’s independence will be under severe pressure.

Le Monde is the textbook example of the evolution of French press over the last years:

• A steady erosion in readership.
• A lack of budget discipline, made worse by loose governance.
• The core newsroom’s reluctance to support the digital strategy
• The collective certainty the “brand” was too beautiful to fail and that a deep-pocketed philanthropist will inevitably show up at the right time to save the company.
• An difficulty to invest into the future, to test new ideas, to built prototypes, to coopt key talent or to invest in decisive technologies.
• A bottomless investment in the heavy-industry part of the supply chain, in costly printing facilities.
• An excessive reliance on public subsidies which account for about 10% of the industry’s entire revenue. Compared to Sweden, French newspapers have 3 times less readers, but each one gets 5 times more subsidies.

To a large extent, these characteristics are shared by most French newspapers. This could explain the dire situation of the Gallic press. As of today, four major properties are on the block, or urgently looking for saviors:

• Le Monde seeks at least €100m (for a first round).
• Le Parisien, a popular daily, is for sale; although quite good from an editorial perspective, it is not profitable and its family ownership wants to refocus on sports-related assets.
• La Tribune, the n°2 business daily, is looking for a majority investor.
• Liberation is also facing a  cash stress.

Le Monde’s situation is by far the most critical and the most emblematic. Here are the key elements : In 2009, the Groupe Le Monde had a revenue of €390m, an operating profit of €2.2m, and a net loss of €25 m. It is crumbling under €100m in debt, the result of a failed acquisition strategy. Its arcane shareholder structure includes Lagardère Group for 17%; the Spanish group Prisa (owner of El Pais) for 15%; the newsmagazine Le Nouvel Observateur for 5%; its staff for 22% and various other entities for the rest. Its main assets are : The daily Le Monde and its weekly magazine; Le Monde Interactif (including Le Monde.fr); three other magazines; and a printing plant. Over the last three years, it looked like this:

Over the last fifteen years, Le Monde’s management proved unable to come up with a cogent strategy. The group tried to expand into the regional press and into the magazine sectors without any coherence behind such moves. The only tangible achievement was the creation of Le Monde Interactif, this against most of an internet-adverse newsroom. In fact, Le Monde’s digital unit had to handle 34% of its ownership to the Lagardère Group in order to get sufficient funding.
The group’s current valuation reflects the state of the different business units. Calyon, an investment bank, valued Le Monde Interactif at €67m, the magazines and the printing plant at €63m, and the newspaper itself at…€10m!  An absurd valuation considering that most of of Le Monde’s editorial firepower still lies in the paper’s newsroom.

Until recently, management was highly confident: Le Monde would easily find fresh capital. Five potential investors were considering a bid. Outside of France, there were the Italian group L’Espresso led by the industrial magnate Carlo de Benedetti; the Swiss group Ringier; Groupo Prisa from Spain. On the French side, the two major contenders were Claude Perdriel, owner of the weekly newsmagazine Le Nouvel Observateur; and a group of three private investors combining Matthieu Pigasse, head of the investment bank Lazard in France, Pierre Bergé co-founder of the fashion house Yves Saint-Laurent and has a long history of financing left-leaning lost editorial causes (he was close to the late socialist president François Mitterrand), and Xavier Niel, a highly successful telecommunication entrepreneur whose net worth is north of €2bn.
The five were said to be ready to commit €80-100m to get a majority stake in Groupe Le Monde. Then two things happened: the opening of the data room and the interference of French politics.

The electronic data room opened about a month ago. After few days of number crunching and legal analysis, two of the big media groups, Ringier and L’Espresso withdrew. Ringier found out Le Monde’s situation was far worse than expected with a €200m cash need. Gruppo De Benedetti opined a bankruptcy filing was required, before anything else, in order to clear up the debt. Among other things, potential liabilities at the printing plant are worrisome: it’ll lose roughly 30 to 40% of its revenue this year; it needs both a major upgrade and a severe downsizing of its heavily unionized workforce.

In France, firing a printing plant employee is hugely expensive. The gent is paid €50,000 per year, works 32 hours per week and 164 days per year. Firing him costs about €466,000 – that’s a  French government estimate, it (we…) might pick part of the tab. Combined with the mandatory modernization of the plant, the workforce downsizing was to add about €50m to the bill. Others dark discoveries such as massive off-balance-sheet liabilities discouraged the foreign suitors. As for the Spanish group Prisa, it asked to postpone the deadline to September, a request denied by Le Monde as it faces a short-term cash crisis.

In itself, the withdrawal of three serious media concerns had to be seen as a further warning of Le Monde’s dire predicament.

It didn’t discourage French bidders. For the triumvirate led by the Lazard partner and financed by the telecommunication Niel and fashion tycoon Bergé, this development wasn’t to change anything. They can handle a sharp rise in the required funding. This didn’t turn out to be the case for Claude Perdriel, the Nouvel Observateur owner. At 84, this wealthy businessman made a fortune in high-end bathroom fixtures. In 1977, he launched Le Matin de Paris, a modern, cleverly designed newspaper, whose main purpose was to support François Mitterrand’s presidential bid. Once the socialist settled at the Elysée palace, Le Matin unabashed support made it increasingly irrelevant, it folded in 1987. This explains Claude Perdriel’s desire to put his hands on Le Monde. But with the prospect of an ever increasing price for the prize, Perdriel quickly realized he needed some backup (he should have known, he sat on Le Monde’s board, after all).

Perdriel first found help in Stephane Richard, the newly appointed CEO of France Telecom, the country n°1 telco that includes the ISP and mobile carrier Orange. Richard intends to make two moves: first, take over at least a third of Le Monde’s digital unit by buying the 34% stake owned by Lagardère; second, to invest at the group level. A minor detail: Orange’s main shareholder remains the French government, with a 26% ownership. And this Sunday June 20th, after a last ditch effort, the Perdriel-Orange duo announced it has been able to reintegrate the Spanish group Prisa in its bid.

Two weeks ago, Nicolas Sarkozy jumped into the fray. The French president summoned Le Monde’s CEO Eric Fottorino to express his view on the battle for the paper. The President loathed the bid from the trio Pigasse-Bergé-Niel. Xavier Niel, he said, is a bad idea; classy as always, the head of State called him a “peep-show man”, referring to Niel’s early activities in Minitel “personal” services (Claude Perdriel made a fortune in the very same business).
But Niel’s early days are the least of Sarkozy’s problem. He sees the self-made entrepreneur as an uncontrollable maverick backing two anti-sarkozy websites: Bakchich and Mediapart. For the media control-freak Sarkozy, the thought of having the Niel crew taking over Le Monde is an unbearable one. With Perdriel, at least, he won’t wander in unchartered territories; and since the Nouvel Obs owner is a bit short in cash, he’ll have to rely on the government-friendly Orange.

Here we are. Two years before the next presidential election, Le Monde’s independence is clearly at stake. Of course, it is highly unlikely to see the new owner’s representatives getting involved in editorial choices. Things usually  work on a subtler, more pernicious way.

On the Perdriel-Orange side, in a self-granted interview, Denis Olivennes, Le Nouvel Observateur’s publisher let it be known he wanted to create “a center-left newspaper”.  This vision of a news organization built on political agenda is passé, to say the least. More importantly, with Orange as a backer, numerous subjects will become difficult to cover in Le Monde. Orange spends about €1 billion a year in contents: cinema, all forms of TV, broadcasting sports rights. For any Le Monde journalist covering such topics will become very touchy… in addition to those at the core of Orange’s businesses (internet, mobile, infrastructure, regulation). Again: Orange people won’t interfere with the coverage, but reader perception will be tainted (not to mention self-censorship, a plague in French newsrooms). To prevent such suspicion, it was crucial to secure the moral backing of El Pais owners, hence this weekend’s intense discussions.

As for the Pigasse-Bergé-Niel trio, the presence of Lazard France’boss Matthieu Pigasse is not likely to lighten the ambience.
First of all, Pigasse is said to have political ambitions (see his profile by Reuters here); he is close to IMF managing director Dominique Strauss-Kahn (a likely presidential candidate for 2012); he is involved in various think-tanks; he was an adviser to a center-something candidate during the last presidential election. Pigasse is cozy and charming with journalists, and cultivates the oxymoronic image of a cool-banker by owning a rock and roll magazine.
Second problem: should Pigasse and his associates get Le Monde, Lazard’s involvement in many sectors will raise questions. For instance: Lazard has been retained by the Greek government as an advisor on its public finances; the Paris-based sovereign debt division of Lazard is also helping countries such as Argentina, Ecuador, Ivory Coast, Kazakhstan. Not to mention the bank implications with many Fortune 500 companies. Already, big PR firms are sharpening their knives and are ready to discredit Le Monde if their clients come under attack. At some point, Mr. Pigasse will have to choose between his banking, political and media ambitions.

What does Le Monde need now? Four things (at least).

1. A project. Both editorial and industrial. Editorially speaking, Le Monde needs to turn up its competitive metabolism, to muscle sections such as the business coverage, and to better integrate its website in a strategically planned approach of the news.
2. A restructuring. Assets such as the magazine Telerama have to be sold (as long as there is a buyer). The printing plant will have to be shut down and the print load transferred to Le Figaro which has built a modern facility that can handle Le Monde print run.
3. A decisive human resources initiative. Like in every newsroom, there are huge imbalances in the staff workloads, which creates frustration and bitterness. On average, a journalist at Le Monde works 15% to 20% less than its counterpart at the Guardian or El Pais. This has to be adjusted through a fair (but delicate) labor negotiation. Actually, the Prisa group wanted to address this issue rather bluntly.
4. A long term approach. In any case, Le Monde’s renovation will take years. On this aspect, Claude Perdriel’s bid is not particularly appealing; at 84, he is not likely to stay at the top for long, and after him lies an uncertain future — especially when the restructuring will require additional funding. The Niel-Bergé-Pigasse team claims to have more of a long term approach (and deeper pockets). As long as it is able to refrain from using Le Monde to push political agendas or careers, as long as the newsroom can be protected against conflicts of interest – and that’s two big ifs – their bid could bring a more stable future for Le Monde.

Le Monde remains a great news organization, both in print and online. It might become irrelevant within a few short years if its new owners want to use it for their interests or goals. Otherwise, if proper steps are taken, it has the potential to be an editorial powerhouse comparable to the Guardian or The New York Times. This is what is at stake today.

—frederic.filloux@mondaynote.com

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