Konnichiwa FT that is Hello FT in Japanese..
Last week was an interesting one for anyone following the Media industry. Financial times the 127-year-old, iconic British newspaper was sold by it’s owners, The Pearson group. The sale generated a great deal of interest among industry watchers. Analysts sliced and diced it from every conceivable angle, financial, strategic and journalistic.
The 40x multiple
At 1.3 billion dollars it is a pricey acquisition by any standard. In comparison Jeff Bezos paid 250 million dollars for Washington post in 2013. As a multiple it translates to 2.5 times last years revenue and almost 40 times its operating income. Nikkei of Japan out bid Germany’s Axel Springer, a more diversified media group to acquire FT. When companies fork out disproportionately large sums of money it is usually for strategic reasons. Nikkei is a quintessential Japanese company, very large in Japan yet nearly unknown outside of it. FT is a trophy acquisition to help in any globalisation plans it may have.
Editorial Integrity
This has received the greatest attention. It is not surprising given that the previous owners, Pearson group had a hands off approach to FT. The editorial integrity and independence of the organisation has been impeccable. Nikkei on the other hand comes from a Japanese culture where journalism is not as hard nosed and critical of the establishment as in the western world. There are also differences in the way sensitive corporate information is covered. A case in point is the recall of Japanese cars. Time alone will tell if the new owners will continue this tradition of non interference.
Digital Transformation
FT and Nikkei come from different ends of the digital spectrum. To me, this is the most interesting dimension of the transaction. The acquisition is happening at a time of great transformation and change in the industry. Traditionally, the newspaper industry relied on revenues from print subscriptions and classified advertisements. The era of internet, mobile phones and tablets has not been easy on the industry. As more people get their news from online sources, demand for print editions is on the decline. A direct consequence of the shift to online content is a corresponding decline in print advertisement revenues.
Over the last 10 years American newspaper industry has lost a third of its print advertisement revenue, going from 60 million dollars in 2000 to 30 million dollars now.
The industry has responded by going digital and serving up more content online. However, the world of internet advertising is extremely competitive and characterised by low prices; making it difficult to make up for lost print advertisement revenue.
Digital Transformation at FT
FT has been a symbol of success and a beacon of hope in an otherwise bleak outlook for the industry. Digital technologies give companies the ability to engage their customers, understand their needs and usage patterns in ways that traditional print subscription channels cannot. On the back of this knowledge companies can offer tailored content that customers will readily pay for. FT did just that.
In 2001 FT introduced the paid online subscription model. Customers were asked to pay for accessing valuable content online. In the best traditions of marketing some content was provided free while others that was deemed valuable was charged. Free content was meant to entice users to pay for a subscription. In 2007 they tweaked this model further to give more control back to the customer. The new model allowed, customers a certain quota of free content, against this quota they were allowed to download anything they wished. Content was no longer categorised as free and paid. Customers were free to chose the content they wished to avail against their quota. Subscription was required only when they exhausted their allotment.
2007 was a monumental year for FT. They broke with the industry practice of selling bulk content to aggregators, who in-turn sold it to the end users. Aggregators were bad business for two reasons, one they drove prices down, two they prevented direct contact with end users. Changes to this channel ensured that customers accessing FT content through an aggregator registered on FT.com. This gave FT enough analytics to understand customer behaviour and serve them better.
FT was paranoid about owning the customer, they refused to work with Apple when new terms required apps to share revenue and route payments through Apple’s gateways. Under this model subscriptions and cancellations would be managed by apple and not by FT. A technologically handicapped FT decided to meet the challenge head on, they acquired a development firm, Assanka and integrated it into FT as FT Labs. FT Labs later developed a HTML5 app to replace the FT iTunes app.
These measures paid off. 70% of their 2014 revenues came from digital subscriptions. FT had finally moved from print subscriptions and advertisements to paid online content.
Land of iMode lags behind
Japan is the land of DoCoMo and iMode, a society that has embraced mobile technology at a faster rate than any country in the west. However, the state of the newspaper industry couldn’t be more different.
In japan print editions are still very popular. Nikkei has 2.7 million subscribers of which only 430,000 subscribe to it’s online content. A vast majority are still print subscribers. Contrast this with FT, 70% of it’s subscribers are digital.
However, this trend is changing, younger Japanese are tech savvy and like the rest of the world prefer to consume news on their mobiles and tabs. Digital disruption of media in Japan in already a reality. To appeal to the younger clientele Nikkei urgently needs a sound digital strategy. FT’s experience in digital transformation will certainly help Nikkei in their own transformation. In my opinion this is important enough to justify the price premium paid by Nikkei.
The second wave of disruption
FT has successfully transformed itself from a print newspaper business to a digital media business. It has succeeded where many others are still struggling. However the internet world is a fast evolving one, with new companies disrupting incumbents. Disruptors for the media industry don’t have to come from within the industry.
A second wave of disruption is coming. There is a renewed interest in NEWS from companies like Facebook, Apple, Twitter and LinkedIn. And this time they are not just happy to play aggregators, they are vying for editorial control. It is rumoured that apple is out there recruiting journalists and editors.
Entry of these internet heavy weights is a double edged sword for the newspaper industry. On one hand they acquire a new digital go to market channel and access to a whole host of new customers. But on the other they may be forced to relinquish control over their customers and become a backend news generation engine. Facebook has started signing up publishers for its brand new offering – Instant news service. Apple for its part has signed up a few publishers for it’s offering, Apple News. Not to be left behind twitter is also busy launching it’s own version of news code named Project Lighting, that will curate and present tailored news to its users.
A partnership to weather the storm
In it’s previous run in with Apple, FT chose to leave the apple eco system in order to retain ownership of its customers. In the changed world, can it still maintain its position ? If it chooses to take on the internet players head on it will require access to capital, something that Nikkei can readily provide. On the other hand if it choses to work with them, a combined entity Nikkei-FT will have the scale to drive a hard bargain.
The second wave of disruption is coming. FT & Nikkei will need each other to weather this storm. This may after all turn out to be a marriage made in heaven.
