SanomaWSOY, Axel Springer, Ringier, WAZ and Handelsblatt Expand, Consolidate East European Operations. Lagardere Looks to US Hispanic Market

Philip Stone January 24, 2005

The announcement by SanomaWSOY of its €142 million takeover of Dutch-owned Independent Media, Russia’s largest publisher of consumer magazines, marks yet another continuing step by Europe’s leading publishing houses to become dominant players on the East European media scene.

Sanoma Magazines, publisher of 230 magazines in nine countries, is the market leader in the Czech Republic and Hungary, has a major presence in Slovakia, and is building its business in Croatia, Bulgaria, and Romania. In entering the newspaper and magazine marketplace of its eastern neighbor, Russia -- Europe’s largest market -- it will control about one-third of the Russian print media’s ad market. Independent Media’s turnover in 2004 approached €70 million.

“This is the last big missing piece in the expansion that started back in 2001 (when it bought Netherlands-based VNU magazines),” said SanomaWSOY President Hannu Syrjanen.

The Finnish investment in Russia at this time is particularly intriguing for two reasons:

There is much dissatisfaction in the West with what is seen as a Kremlin crackdown on press freedom over the past two years – particularly that media owned by oligarchs that have been particularly critical of President Vladimir Putin.

Dissatisfaction with what is going on in Russia  is echoed editorially by the Helsingin Sanomat newspaper, the flagship of SanomaWSOY in Helsinki and considered to be the leading quality newspaper in the Nordic region. It has been strongly critical of Putin, especially about how the Kremlin has dismantled the Yukos Oil Company and kept in jail on tax evasion charges its principle owner and Russia’s richest oligarch, Mikhail Khodorkovsky. The newspaper’s editorial line has suggested that in such an environment Russia was not the safest bet for foreign investment at the current time.

But at the senior management level, SanomaWSOY obviously discounted such fears from within its own editorial operation.  The Finns have a long and fruitful business history with their eastern neighbor, going back beyond the days when Russia was the Soviet Union, and Finland was a neutral country outside the EC. In completing the deal senior management must have acted on a business analysis that political stability and long-term growth is still a priority in Putin’s Russia.

And it is now that the business opportunity presented itself. Derk Sauer, the Dutchman who created Independent Media, wanted to sell, he has had a close working relationship with Sanoma people for many years, and with Sanoma always wanting a major presence in Russia it was an opportunity whose time had come. The deal is slated to close within the 2nd quarter.

SanomaWSOY gains such properties as the Russian versions of Cosmopolitan and Good Housekeeping among its 31 magazines and the newspapers include the St. Petersburg Times and the English language Moscow Times.  SaomaWSOY newspapers at home enjoy a top quality editorial operation and that editorial expertise will likely not be lost on the Russian newspapers.

SanomaWSOY will also bring other important skills to the deal, necessary for the long-term success. For example, at present press distribution outside of Moscow and St. Petersburg is very poorly developed, but Finland enjoys an extremely advanced distribution system.

The Sanoma deal highlights what has been a breathtaking investment in Eastern Europe media by the continent’s major publishing houses ever since the Iron Curtain came down.

Perhaps the largest East European investor is Europe’s largest publishing house, Germany’s Axel Springer.  Among its German properties are Bild, which with circulation near 4 million is Europe’s largest circulation newspaper, and the noted quality newspaper, Die Welt. With the media being the worst industry performer in Germany for the past five years because of a biting recession severely affecting advertising income, it became natural to expand investment elsewhere.

Springer only recently entered the Russian language market with Forbes and Newsweek, but it is the largest publishing house in Hungary, the second largest magazine publisher in Poland where it has just launched Forbes and it is the leading publisher of automobile magazines in the Czech Republic.

It has had two remarkable newspaper successes within the past two years. In Poland, where the fact that Springer is a German company doesn’t help in a country where families still commiserate what happened under Nazi occupation, Springer launched a tabloid newspaper, Fakt. Within months, enjoying a very low newsstand price – there were charges of dumping – Fakt became the country’s top seller, overtaking the well-entrenched quality daily, Gazeta Wyborcza, which enjoys a daily circulation of more than 500,000. One secret to Fakt’s success: When necessary be just as anti-German as the rest of the Polish press!

Taking a page out of the recent very successful western media’s trend to market additional products with newspapers, Gazeta Wyborcza has fought back by offering low priced encyclopedias with its newspaper, giving Warsaw as good an old-fashioned newspaper circulation war as any to be found elsewhere.

In Hungary, where Switzerland’s Ringier is very dominant in the national daily newspaper field owning several titles, Springer saw an opening in the Budapest and suburban market. It launched a new daily newspaper, Reggel, which within months is said to be well on its business plan to attract some 60,000 readers.

Springer publishes more than 100 newspapers and magazines outside its home turf, although only about 15% of its revenue comes from abroad. It says it intends to continue investing in Eastern Europe, and it also has big plans for China.

Ringier, based in Zurich and Switzerland’s largest publisher, announced a record profit for 2004 with its foreign titles contributing handsomely to the bottom line. It got into Eastern Europe early after the fall of communism and owns more than 40 newspapers and magazines in Romania, Serbia, Slovakia, the Czech Republic, and Hungary.  But for the past few months it has suffered two public relations disasters that have not helped its brand or the reputations of western media in that part of Europe.

The first involved the closing and later selling of the old established Magyar Hirlap in Hungary. The second, in Romania, has resulted in demonstrations outside the Swiss embassy and EC offices in Bucharest with protestors yelling, “We want press freedom” and “Down with censorship”.

Ringier owns the tabloid Liberatea, the country’s highest circulation newspaper, and Evenimentul zilei, the country’s third highest circulation newspaper. Its problems stem with Evenimentui zilez, which for some time took a strong stand against the Social Democrat government of Adrian Nastase, with articles focusing on corruption, the communist past of some officials, and election fraud. The government took retribution by freezing the newspaper out of any government advertising.

The Social Democrat lost the December election to the Justice and Truth Alliance candidate Traian Basescu, perhaps partly due to Evenimentul zilej printing on election eve transcripts of Social Democrat meetings that suggested high-level corruption, interference with the judiciary, and attempts to muzzle the media.

But then on Dec. 23 with the elections over and publicity at its lowest for the Christmas festivities, Ringier told editor Dan Christian Turturica, who had only been on the job since October when the previous editor was demoted to writing just a couple of columns a week, that he was being reassigned and yet another new editor would be named.

Journalists claimed Ringier wanted to muzzle criticism of the new government and wanted to be friendlier to the business community. Ringier responded that Turturica had been given several business objectives to be completed by the end of 2004 and he had failed. Ringier also referred to “irreconcilable differences over management style.”

Not helping to placate the censorship fears, Ringier refused to print an article by one of its journalists giving the staff view of the situation. It ended up being printed by Romania Libera, the country’s fourth largest circulation daily owned by Germany’s WAZ, itself subject of censorship issues when its anti-government editor was fired a month before the elections.

The journalists say they want to start a new newspaper, based on Le Monde’s  charter, and to stop any undue influence in editorial policy no entity would be allowed to own more than 5% of the newspaper. East European commentators, meanwhile, are busy writing articles blasting these examples of western media influence in Eastern Europe.

WAZ, the second largest German newspaper publisher behind Axel Springer, has also has had its share of censorship charges. At Romania Libera last fall editorial used the entire front page to protest being told by the publishers to write more lifestyle stories and less political stories. In the former Yugoslav republic of Macedonia where it owns the three leading newspapers, it has been accused of increasing tensions between the ethnic Albanian minority and the Macedonian Slav majority.

Its other Eastern Europe investments include five regional newspapers in Hungary, eight publications in Bulgaria, and several publications spread through the Balkans.

Not being left out of the investment in the East, Germany’s Verlagsgruppe Handelsblatt, which owns the majority of the German financial newspaper Handelsblatt, started the New Year by buying 50% of Bulgarian Econonmedia, which publishes Bulgaria’s two largest financial newspapers and several specialty magazines.

But Lagadere, France’s second largest media group, is looking west, not east.  “The U.S. is a market that is evolving very quickly,” according to co-chief executive Philippe Camus. He sees the Hispanic community opening up with “enormous opportunities.”

US publishers have been trying to gain footholds in the Hispanic market – many on their own doorsteps -- with very limited success. Perhaps, as in the east, it takes a new pair of eyes, to make money in the west.