Grumpy board feels pain, changes CEO

Michael Hedges May 20, 2009

Few, if any, media companies are escaping the ad slump. Directors and stock traders are showing little patience. Cut costs, dump non-core investments and change the CEO, they say.

Schibsted is one of Europe’s biggest media companies, publishing big daily newspapers in Norway and Sweden and owning the 20 Minutes franchise in several countries.  It has reached into new media in fits and starts. Unpleasantly, advertising and other dismal sciences are treating Schibsted poorly.

First quarter financial results released last week (May 15) showed Schibsted’s pain. Ad revenues at the newspapers sank 18%, compared with the first quarter 2008, and operating revenues dropped 10%. Blame, said a company statement, goes to “the weak real economic climate” which has had “a considerable negative effect on the advertising markets. A weak advertising development is expected for 2009.”

So weak is the immediate outlook, the Board concluded, a stock issue for NOK 1.3 billion (about €150 million) is necessary as well as a new CEO. A “significant” decline in ad revenues caused media group Schibsted a €5.2 million (NOK 46 million) first quarter 2009 loss over the same period in 2008. Schibsted publishes 20 Minutes in France, which showed a €1.9 million operating loss on €10.8 million revenue.

While Schibsted may be better known for its newspaper titles in Norway and Sweden, the leading profit center is online classified ad sites based on finn.no. In coming CEO Rolv ErikRyssdal has been directing that development. The company’s classified ad sites appear in more than 20 countries, expanding most recently in Asia.

Other online ventures have had less than desired results. In 2005 Schibsted ventured into online search hoping to peel away ad spending in Norway from Google with search engine Sesam. In early April the company gave up and folded Sesam into finn.no with, reportedly, a write-off in the vicinity of €200 million.

Targeted search – contextual - advertising in Norway is estimated at about €90 million (NOK 800 million), of which Google reportedly takes more than 60%. Traffic to Sesam wasn’t the problem. The search engine worked like it was supposed to work. What it lacked was an effective ad network, which Schibsted seem reluctant to develop.

Other Nordic media companies like Mediehuset Digital and Edda Mediahave jumped into ad networks, Mediehuset with MyAd and Edda Media with Powerad. A new entry is OpenAdExchange. Schibsted still stands on the sidelines. “Our attitude is to wait, “ said Ryssdal to Kampanje (May 18).

In March ZenithOptimedia reported online ad spending in Norway and Sweden topping 10% of all ad spending in 2009.

Another casualty of the strategic review that began last November was Swedish video production company Metronome Film and Television. The sale of Metronome to Shine Group was announced at the end of April for €67 million (SEK 719 million). Shine Group owns several video production companies, including the award winning UK production house Kudos.

Schibsted bought out Metronome’s minority partner Endemol in September 2007. “In a media landscape where the production of content is increasingly important,” said a Schibsted Sweden executive at the time of the transaction, ”Metronome will play a key strategic role for Schibsted.” Things change. Every strategic review calls for a return to core activities.

Norways media authority Medietilsynet and competition authority Konkurransetilsynet are giving Schibsted until June 12th to cut its stake in Polaris Media. In a note to the stock exchange Schibsed said it had engaged proper investment bankers to hurry up the process. Schibsted holds a 42% stake in Polaris Media, which it is required to cut to 7.1%. Divesting Polaris Media is required for the competition authorities to approve Schibsted’s Media Norge regional Norwegian newspaper group.

When all the authorities and shareholders are satisfied Schibsted will wholly own Media Norge. The plan agreed by the Board in March is to float 35% of Media Norge in an IPO. 

Schibsted is weighted down by the quite common paradox of having roots in traditional media – the first newspaper dates from the 1860’s - and dreams in new media. Those roots bind Schibsted to the safety and security of structure and operations. New media defies all of that.

Schibsted has benefited from less economic pain in oil-exporting Norway than in the rest of Europe. That, too, can be an illusion. The official office for economic data Statistics Norway gave the bad word (May 19) that the country’s economy has dropped over two quarters, officially signaling a recession.  IRM Media reported (May 19) first quarter 2009 ad spending in Norway was 13.9% lower than the same period in 2008.