Let’s start with a counterintuitive move: At a time when, all over the world, publishers are  tired of the red-ink their printing plans produce and dream of dumping the dinosaurs, the historic French daily Le Figaro fires up this Monday a brand new €80M printing facility to launch a redesigned edition. Behind this apparently irrational decision lies a gutsy but calculated bet to change French advertising habits.

French  newspapers love what they call
Une Nouvelle Formule. As the Fall approached, the left-leaning Libération launched its own, then Le Monde retooled its weekly magazine. "Libé" is betting on an elegant graphic redesign; fine, but this is merely a diversion, a way to avoid painful challenges such as editorship, insightfulness, content relevance.
Le Monde Magazine wishes to reconnect an excellent but elitist magazine to the advertising market and, incidentally, to its readers. To beef up its mag operation, Le Monde brought in a new seasoned editor, a new art director and relies on an abundance of journalistic or photographic talent at and around the paper in order to produce high-quality content.
How these two initiatives will fare is too early to tell. Le Monde's mag was launched Friday, as for the redesigned Libé, it is barely a week old.

Le Figaro's move is both more ambitious and much riskier. First, let's have a look at the company’s fundamentals.

  • Groupe Figaro is a privately held company controlled by Serge Dassault, who owns the eponymous aircraft maker Dassault (Rafale fighter jets and Falcon business jets). Being private, the company does not have to provide financial data.

  • The Groupe’s main products are:
    - Le Figaro (daily)
    - Le Figaro Magazine, TV Mag, Madame Figaro, all sold on weekends with the daily
    - Le journal des Finances.

  • Digital properties include LeFigaro.fr as well as many others sites in sports, entertainment, culture, services and e-commerce.

  • A large classified business is built around AdenClassifieds, a multi-brand classifieds system controlled (at 83%) by Groupe Figaro and listed at the Paris stock exchange.

Key Figures (some are approximations):

  • Circulation for the daily : 330,000 copies (same as Le Monde ; but non-paying end users are much numerous for Le Figaro : 28% vs. 17%, the hybrid modelis looming…)

  • Total revenue (group) 2008 : €600m ($956m)

  • Estimated revenue for 2009: €550m ($800m)

As reconstructed, the breakup approximately goes like this:

  • Revenue from the daily: 30% (€180m) 50/50 advertising and circulation

  • Online activities : 17% (€46m) ; on that, LeFigaro.fr brings €12m in revenue

  • AdenClassifieds : 10% (€60m) for a €6.3m profit

The group will remain profitable this year despite a €50m loss in advertising ; 70% of the Groupe Figaro's revenue come from sources other than its flagship newspaper. The paper itself is losing about €5m a year.

Editorially speaking, the newspaper is utterly supportive of Nicolas Sarkozy, so much so it ends up irritating segments of its own audience. As for the Figaro Magazine, it carries all the daily’s right wing values, adding a condensate of the flabbiest French conservatism. Among the group’s components, the Fig Mag is the one deserving of the deepest remodeling (it had 3,000 ad pages per year twenty years ago, now 1,000 ; as a comparison and for what it worth, the New York Times Magazine had 3,379 pages in 2008, just behind the n°1 People 3,422).
As far as business coverage is concerned, Le Figaro enjoys significant coziness with many sectors: fashion, where editorial independence is an ectoplasmic concept, is but one example. Its overall economic coverage is not as good as it should be -- a widespread intellectual weakness of the entire French press.
Otherwise, the paper has a strong editorial crew, an excellent sales and marketing team and it is served by a Media House-like strategy where every brand is connected to the other, making the whole worth more than the sum of its parts.

Then what's Le Figaro's problem ?

Last week, I asked Francis Morel, its CEO, for the rationale supporting the huge €80M investment in a new printing plant; he answered with two statistics: in the early nineties, the newspaper’s revenue from classifieds was about €150m per year; now, it is €12m. Second data point: in the United Kingdom or in Italy, the average number of pages purchased per advertising campaign is 4.5. In France, it is 1.2 page per campaign. In this latter case, "campaign" is an overstatement: brands tend to do mostly one-shot operations in the French daily press.

The reason for these limited efforts lies in the price of a page. To put it another way: for the same target group, in order to appear in a daily rather than in a magazine, a French advertiser must be willing to pay twice the price per reader. (Of course, there are many other considerations in the choice of a media). The economic downturn makes things worse: the cheapest medias are gaining market share at the top tier’s expense.

Hence the equation that must be solved: how to manage a kind of "controlled deflation" in the advertising space in order to regain market share against less expensive magazines?  The arithmetical answer is to give more for less, that is offering more premium pages at a lower price. The new Figaro printing plants (there are two of them owned by a joint venture with an Italian publisher) will provide full color capability for all pages using an innovative waterless process delivering spectacular rendering for pictures and ads.
Eventually, the cost per copy might drop by a hefty 20% once the full impact of staff reduction is taken in account. French printing plants used to be massively overstaffed; now, the government provides restructuring help for the entire sector at the absurdly high cost of €466,000 ($685,000) for each union worker condescending to a buy back (see a story I wrote in Slate France exposing the whole deal).

Symmetrically, Le Figaro will reflect this cost improvement in its price policy by granting further discounts to advertisers who buy at least two pages (they get the third for free, as in the grocery store). Overall, the average net revenue per page sold, will be allowed to drop by at least 10% to 15% -- probably more (a page in the daily is currently netting €45,000 to €50,000 on average).

To which extent, and when this loss will be offset by higher volume are two interesting questions.

Of course, there is the industrial aspect of the investment. Le Figaro's new facilities are able to address several of its competitors’ printing needs. The most obvious is Le Monde whose printing plant is obsolete and costly to operate (too many people). The two papers now use the same page size (a "Berliner" format), and are produced at a different time of the day. A perfect fit in theory. Mr. Morel denies vehemently having any intentions of harming Le Monde. But there is no need to be a Wharton scholar to see the two torpedoes Le Figaro is firing at its competitor: one is the better looking and cheaper ads, the other a more commercially potent printing plan. At least, "Le Fig" might print the business paper Les Echos and perhaps one of the three free papers.
A timeline question remains. An investment of such magnitude assumes an amortization over 15 to 20 years. Who knows where the newspaper business will be just ten years from now ?

Evidently, "Le Fig" is hedging its bets with other sources of income. The most obvious is the online business. It currently accounts for 17% of the total revenue and is expected to climb fast : the goal is 20% in 2010 and 25% in 2012. But the group' sites are suffering from the same headaches as everyone else does: lower CPM, competition from Google with its text ads and now with display (banners) ads. Le Figaro, who used to buy lots of traffic from Google has turned angrily against the search giant's predatory practices.
Aside of the anti-Google crusade, the senior VP for sales & marketing, Pierre Conte, made no mystery wanting to alter the balance of power between advertising agencies and medias. His idea is to increasingly bypass advertising agencies and deal directly with brands and advertisers to better address their needs. Mr. Conte said so publicly several times. (A strategy that bears some resemblances with the radio station turned social network Skyrock we discussed in this issue of the Monday Note).

But the real potential for Le Figaro's online revenue lies in the readership duplication rate between print and web. Today, only 20% of the print readers also visit the website, this is quite low when compared to the 30% to 45% its competitors experience. This points to the paper’s generation problem: 42% of Le Figaro’s readers are 60 years-old and above, compared to 27% for the rest of the French press; naturally, the web is expected to rejuvenate its audience. Today, LeFigaro.fr is the #1 newspaper site in France with more than 5 million unique visitors a month (OK, thanks to some questionable measurement tricks). Still, each time 10 web users are gained, this translates into 2 more print readers (along with 10-15 times more revenue per reader on paper side).

Le Figaro's strategy faces two main challenges. First: will lower printing costs and a higher volume of (cheaper) ads succeed in recouping a huge industrial investment. The money is poured into a dying model. Le Fig's people do discount the potential residing into a much smaller print press perimeter five to ten years from now. (On the future of print, see also our story on digital presses and about the DIS (Daily Information System) concept parts 1 & 2.)
Second: the appalling inability for the two leading national French newspapers (Le Figaro and Le Monde) to work together on critical issues. These are, in no particular order: how to handle Google, how to better deal with advertising agencies, the unions, or devising a smart paid-for internet... And the French government, usually prompt to jump into every industrial issue, shows no leadership in this particular field (too bad for the taxpayer who is picking up most of the French press’ restructuring tab).

Otherwise, with planets properly aligned, Le Figaro’s grand plan could fly -- without the help of Dassault's Rafale wings.  —frederic.filloux@mondaynote.com

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