Ringier Reports Most Successful Year Ever, Leaving a Bitter Swiss Pill for Closed Hungarian Newspaper to Swallow: Performance is Key To Keep Capitalist Money Flowing -- Or Was Something Else At Play?

Philip Stone November 30, 2004

Ringier CEO Martin Werfell told a Zurich media conference in late November that 2004 may be the company’s most successful. Just three weeks earlier Ringier closed down the well-respected, but heavily loss-making 36-year-old Hungarian newspaper, Magyar Hirlap, that Ringier has owned since 2000. How could it do that if overall profits are so high, the Hungarian journalists asked? Welcome to capitalism 101.

Ringier is one of the most prominent European investors in East European print media, owning more than 40 newspapers and magazines in Romania, Serbia, Slovakia, the Czech Republic, and Hungary

Western investment has been important for the East European media.  Printing plants are modernized and journalists trained to levels never possible under old communist regimes. But this comes at a price – media capitalism – the survival of the fittest, and the Ringier situation in Hungary is as good an example as any that if you don’t perform you don’t survive -- an issue on which eastern Europe is still coming to terms.

Within five years of the 1989 fall of communism in Hungary, Ringier, using its newspaper brand name Blick (then a broadsheet and the leading circulation newspaper in Switzerland) published Blikk, a tabloid which catered to everything tabloids cater to – sex, crime, sports, celebrities, scandals and all the rest.. By 2003 it became the leading circulation (250,000) newspaper in Hungary with a readership around 900,000 (in a country of 10 million population).

In 2000, Ringier then bought Magyar Hirlap from a Swiss investor. The newspaper had transformed itself from being a government organ under the communists into a slick newspaper targeting the middle class. But it was running large financial losses and circulation, which in 1994 when Blikk first hit the streets was around 100,000, had fallen steadily over the years.  When Ringier closed it down this month the circulation was little more than 28,000. Management had tried hard to meet a target of 35,000 copies, but it was not to be.

Two developments after Ringier bought Magyar Hirlap helped seal its doom. At the end of 2002, Gruner & Jahr, a subsidiary of Bertlesman, decided to divest many of its eastern European media holdings, and it sold 49.9% of Nepszabadsag to Ringier, with Gruner & Jahr maintaining a minority position. The rest of the shares were in small holdings, including employees.

Nepszabadsag has a long history as Hungary’s most dominant broadsheet.  It had been the newspaper of the ruling communist party, but it evolved after the fall of communism to become a serious liberal newspaper,  – the country’s biggest selling broadsheet. Ringier now found itself with the country’s highest circulation newspaper (Blikk) and the number two (Nepszabadsag) and if that wasn’t enough it also owned the number three newspaper – Nemzeti Sport with a circulation of some 93,000 but a readership estimated at 250,000. Magyar Hirlap’s performance didn’t fit into this mix.   .

Ringier doesn’t really like owning any minority interest and it was only a question of time until it tried to own more than 50% of Nepszabadsag’s shares  by buying out the remaining 17% of the shares owned by Gruner & Jahr. The big shock came, however, when the Economic Competition Authority overturned the sale. The competition authorities, seeing Ringier with Blick, Nemzeti Sport and Magyar Hirlap, questioned the competitive wisdom of giving it control over Nepszabadsag, too.

That may have been a final nail in the Magyar Hirlap coffin. Did Ringier management reason that if the competition authorities believe you have too much product then you must give something up to get what you really want?  Was Magyar Hirlap with just 28,000 circulation a sacrificial lamb?

Making matters worse for Magyar Hirlap, the German Axel Springer group, even larger investors in eastern Europe media than Ringier, decided this fall to give Ringier a run for its money in Hungary, by launching its own daily national newspaper, Reggei, with a target circulation of 60,000. 

With Magyar Hirlap losses mounting to about $10.3 million, Ringier tried to sell. Hungarian Managing Director, Bela Papp, said there had been some 60 attempts to find a new owner, or at least find partners, but all failed.  In the final days before closure there was much acrimony between management and journalists. Editor Pal Szombathy claimed Ringier had rejected an offer by journalists to take over the newspaper, and that Ringier was more interested in concentrating on Nepszabadsag. The last Ringier edition was November 6.

It is always sad to see a newspaper close. Journalists blame management and more than once the comment was made that Ringier could afford to keep Magyar Hirlap open  -- as the financial figures announced later in Zurich supported  --even if the newspaper was losing money.

But that is not to understand that newspaper ownership is a very big business today. Shareholders want maximum profits and money-losing entities are dumped. It’s hard and sometime cruel, but that is the way it is. Under the Hungarian communist regime Magyar Hirlap would not have been allowed to fold. But when an entity accepts western capital it also accepts western capitalist rules and one of the hardest is that non-performance is a financial no-no. Some countries make it harder than others for the axe to fall, but it is the basic common rule and the real question then becomes how much it costs to do the deed.

The question for Magyar Hirlap editors and administrators to answer is why circulation kept falling, and new targets could not be met. Perhaps because it was a product the marketplace didn’t really want? Western funding deals with that type of reality with little mercy.

But there is a happy capitalist ending to the story. Magyar Hirlap lives! After closure the Ringier management and the journalists held more discussions and a company co-owned by the former staff bought the publishing rights from Ringier for about $550,000.  After 17 days of being dark the newspaper once again hit the streets.

The new publishing company employs 45 full-time journalists compared with the 85 who once worked for Magyar Hirlap, and it will depend on freelancers to make up the slack, according to Szmombathy, the former Magyar Hirlap editor.

Now if that 45% reduction in editorial staff had been offered before closure ….