Le Monde

Those media assets that are worth nothing

 

The valuation gap between high tech and media companies has never been wider. The erosion  of their revenue model might be the main culprit, but management teams, unions and boards of directors also bear their heavy share of responsibility. 

Two weeks ago, with a transaction that reset the value of printed assets to almost nothing, the French market for newsmagazines collapsed for good. Le Monde acquired 65% of the weekly Le Nouvel Observateur for a mere €13.4m ($18m), at a valuation of €20m ($27m). In fact, thanks to convoluted transaction terms, Le Monde will actually disburse less than €10m for its controlling share.

This number is a hard fact, it confirms the downward spiral of French legacy media values. For a while, rumors have been flying about bids for prominent newsmagazines that would float around €20m. At the same time, Lagardère Groupe (a €7bn media conglomerate based in Paris) put most of its French magazines on the block, saying it would close them down if no buyer showed up. It turned out to be a “good” way to tip potential bidders, they can now sit and wait for prices to come down as balance sheets continue to deteriorate. This brilliant strategy is attributable to Arnaud Lagardère, the son of Jean-Luc Lagardère, the swashbuckling group founder. The heir is fond of tennis, top-models and embarrassing statements. He once said of himself: “Maybe [he] is incompetent, but not dishonest” — definitely right on the first count. Today, Lagardère Groupe faces a negative value for a large part of its magazine portfolio, meaning it is willing to actually pay the buyer willing to acquire a publication.

I discussed this situation with financial analysts in Paris and London. They are unforgivingly critical of the causes for this unprecedented value depletion. For a start, newsweeklies paid the price of deteriorating copy sales (roughly -15% for 2013) and of an anemic advertising market. But the real sin, these analysts point out, is the delay in transforming and restructuring companies. One put it bluntly:  “It is clear there won’t be a single euro left for shareholders who didn’t do their job. Today, every acquisition on the French market is first and foremost weighed down by the need for a costly restructuring, which, in addition, will take three or for times longer than in the UK or elsewhere in Europe”.

The case of Le Nouvel Observateur is the perfect example. This iconic magazine of the French social democrats perfectly fits the picture of a nursing home where residents don’t do much while waiting for the unavoidable end. A thick layer of journalists there are keen to praise the weekly: “You come on a tuesday morning to write your column and by the following thursday, you’re gone. I don’t complain.” Two insiders told me that one of the events that finally pushed the aging owner of the “Nouvel Obs” to sell was the nixing of a timid management proposal: cutting one week of vacation (out of twelve) to save money. Also true, a good third of the staff actually does working hard to produce the magazine week after week. But a digital transformation — comparable, for instance, to what the Atlantic Media Group undertook is the US — is a dream completely out of reach.

From an investor standpoint, buying the Nouvel Observateur means spending from the outset €15m to €20m, just to realign the company with decent working practices. French laws and collective bargaining do not help. In the case of Le Nouvel Observateur, the change in ownership will trigger a “clause of transfer” that will entitle every journalist to leave the company with at least one month of salary per year of employment (raised to 120% of the monthly wage beyond 15 years). For the upper layer of the newsroom that will see their working habits incompatible with a probable productivity realignment, this could be a once-in-a-lifetime opportunity to reward their long and tranquil tenure… at a cost of several million euros for the new owner. The same goes for mandatory buyouts, the customary way to push out people no longer needed. (What is Le Monde buying you might ask? Basically a 500,000 subscribers base, a better bargaining position on the advertising market, add a dose of vanity…)

Again, from a investor perspective, being forced to spend €15m-20m before allocating the first cent to a transformative investment is a severe deterrent. This mechanism also threatens daily newspapers such as Liberation (another icon of the French left wing, where I spent 12 years of my career). Isolated, stuck with a single product, dealing with a 35% decline in its paid circulation last year, a weak advertising base and a discredited management (in a recent internal vote, 90% of staff mistrust the bosses), a negative P&L despite €12m in State subsidies, this company faces a certain death unless it radically transforms itself. Its only way to survive might be to forgo the costly daily print edition, move to a well-crafted weekly distributed in selected urban areas, and extend it to realtime digital coverage on web, mobile and tablet. But such a move would mean yet another downsizing, along with heavy costs. No one is willing to be dragged into such “social Vietnam”, as one of my interlocutors puts it.

Those who advise potential buyers are quick to point out that, if the goal is to take a position in the digital world, their money would better be spent in building a pure player from the ground up. With €20 or 40 million, you can definitely build something powerful in the journalistic field.

The highly publicized startup culture — some would say “ideology” — with its unparalleled mixture of agility and skyrocketing valuations contributes to the demise of legacy medias. Consider the table below. It shows the gap between the valuation of each customer of social networks and legacy media:

305 valuations

For what it’s worth, this comparison illustrates the tremendous loss in value for legacy media. Several actually make (slim) profits while digital companies such as Pinterest or Snapchat don’t even have a revenue model. But as unfair as it sounds, investors — venture capital firms, Wall Street, high tech giants — are betting on two factors: the scalability of current user bases (with factors 10x or 20x being the norm) and also the ability of digital players to swiftly adjust themselves to quickly changing environments. Two qualities unfortunately not associated with legacy media.

frederic.filloux@mondaynote.com

 

Two situations, two attitudes

Le Monde and The Daily Telegraph. Two leading newspapers. Last month, both had parallel experiences when dealing with government leaks. Two delicate situations, two reactions – or, at least, two postures.

On September 13th, Le Monde proclaimed it was filing suit against the French government for illegally investigating a leak reaching one of its reporters. Technically speaking, this is a lawsuit is “against X” (John Doe in the US), targeting an unknown person or organization.

The backdrop is both titillating and significant. We have the Liliane Bettencourt case (the L’Oréal empire heiress). One revelation after another, the affaire became a huge embarrassment for Nicolas Sarkozy’s presidency. Eric Woerth, a prominent cabinet minister, is at the heart of a web of conflicts of interests, all defended by a pathetic string of non-denial denials and outright fabrications. As the  Budget minister and as the chief fundraiser of Sarkozy’s UMP party, Woerth was in charge of Liliane Bettencourt’s tax situation while simultaneously collecting her donations for Sarkozy’s electoral machine. Still at the same time, to add another layer of recklessness (or cynicism), Woerth’s wife was working for Liliane Bettencourt’s main financial advisor, Patrice de Maistre, whom Eric Woerth got the Légion d’Honneur for, and who is suspected of helping Bettencourt evade taxes and break foreign bank account regulations. More

Le Monde’s escape velocity

In rocket scientist parlance, escape velocity is the speed needed to break free from Earth’s gravitational field. Last Friday, by an overwhelming majority, Le Monde’s staff voted to escape the black hole of French politics — or, at least, to give their paper the  best chance to do so.

Disassembling the utterly complex chain of ownership control at Le Monde would take most of this column. Let’s just say the newsroom, which historically controlled 22% of the company, gave a resounding 90% vote for a triumvirate including the head of Lazard France, Matthieu Pigasse (41); the co-founder of Yves-Saint-Laurent, Pierre Bergé (80); and Xavier Niel (43), the founder of Free, France’s largest non state-related telecommunication company. Together, the investment banker, the philanthropist, and the telco maverick are likely to become the main shareholders of the most prestigious French newspaper — one that is facing a severe cash crisis (see last wee Note Le Monde on the Brink). The journalist’s choice was supported by most constituencies in a position to influence the group’s fate. Only one voting body chose the other bid; technically it can trigger a deadlock for the ultimate vote at the board level, scheduled for this Monday; this is a highly unlikely scenario, one that would immediately lead to a bankruptcy filing.

Two years ago, such choice would have ben unthinkable. On paper, the other bid, led by Claude Perdriel — owner of the left-leaning newsweekly Le Nouvel Observateur —, supported by the Spanish group Prisa and by France Telecom-Orange, would have got the prize. But their offer got mired in politics, and Le Monde’s staff reacted strongly against it.

Nicolas Sarkozy’s involvement doomed the Perdriel bids. When he summoned Le Monde’s current CEO, Eric Fottorino, to warn him, it felt like George Bush telling the New York Times’CEO: “You have two choices, here is my preference, be careful.” For any journalist, this type of ultimatum is the perfect repellent. Especially when, hoping to influence the decision, the executive branch pushes every lever.

To understand how it works, here, you have to keep in mind how the executive branch keeps the French medias under the tightest possible leash. When a government-friendly columnist is unhappy about his employer, he calls Sarkozy’s chief of staff (nicknamed the vice-president) who, in turn, calls the head of the broadcast network to express his concern. It always works like a dream, especially when the CEO of a network (radio or TV) is a government appointee or, for a private company, when the main shareholder is a FON — Friend Of Nicolas). More

Le Monde on The Brink

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. More

Media: What’s left for the brand ?

A well-established brand is supposed to be a key asset. Everybody keeps dreaming of building a long-lasting brand with lots of positive attributes. How true is it for media ? In the rapidly changing environment, in the massive shift towards electronic media (and the vaporization of value that goes along with it), how relevant is the notion of media brand?

Quite important, actually. Brand management must be handled with great care, especially when business models are threatened. The brand becomes a critical line of defense, and a strategic component to build upon. There are conditions, though, to the survival of media brands — and to the emergence of new ones. More