Axel Springer reboots for digital age

German media giant’s cultural shift sets if firmly on digital-first path

When Mathias Doepfner, chief executive of Axel Springer, and a handful of his top managers first set their sights on the United States three years ago, it was with notebooks in hand, rather than checkbooks.

A decade after taking the helm in 2002, Doepfner had already made significant strides in revamping Germany's largest print publishing group for the digital age. The combined online audience of its flagship newspapers, Bild and Die Welt, had become one of the largest in Europe, and the group was investing heavily in digital companies, which were generating an increasing share of revenues and profits.

Still, Doepfner(52) worried that the company's management culture was too hierarchical and risk-averse, leaving it vulnerable to challenges from nimbler US technology companies like Google and Facebook, as well as rising digital media brands like BuzzFeed and Vice.

“It was very clear to me that we needed to accelerate our cultural transformation,” Doepfner said in a recent interview from Axel Springer’s Berlin headquarters.

But instead of enlisting high-priced consultants, Doepfner opted for the corporate equivalent of electroshock therapy. In the summer of 2012, he sent three of Axel Springer’s most senior managers to California for nine months. They roomed together in a rented house in Palo Alto, with marching orders to network with Silicon Valley executives and study the habits and mores of US start-up culture.

The lessons took hold. Digital activities now generate more than 60 per cent of Axel Springer’s revenues and just over 70 per cent of its operating profit, suggesting its leadership has shed any lingering ambivalence about the company’s online future.

Now, as it seeks to expand its audience globally, Axel Springer has moved aggressively to increase its portfolio. Since June the company has snapped up stakes in the US digital media companies Thrillist, Mic. com and Jaunt, and, in its biggest acquisition, paid $343 million in late September for a controlling stake in Business Insider, the New York-based financial news site.

Doepfner's boldest pursuit in the last year was one that ultimately failed. Over the summer, Axel Springer lost out in a bid to acquire the Financial Times, beaten in the final stages by a $1.3 billion offer from the Japanese publisher Nikkei. Still, it was a big move that highlighted the company's hunger for expansion. Followed quickly by the acquisition of Business Insider, it provided fresh momentum to its push into the English-speaking world and fuelled speculation that Axel Springer was far from done in increasing its digital firepower.

“I would not exclude that, in 10 years’ time, our company could be 100 per cent digital” in terms of revenues, “and 80 or even 90 per cent international,” compared with about 50 per cent today, Doepfner said, as he took in the panoramic view of the German capital from his glass-walled office. “And that given the scale of the US market, the largest part of our English-language business will be in the US.”

Axel Springer considers Business Insider, with its younger, digital-savvy readership, to be its “anchor investment in the United States,” said Jens Mueffelmann (49), chief executive of the group’s digital ventures, who in January will become head of Axel Springer’s growing US operations. The acquisition follows a series of smaller bets on more than a dozen US digital start-ups whose activities generally fall within one of three categories: media content, marketing and classified advertising.

Such minority investments in the US, made directly or partnered with venture capital funds, “give us a foot in the door and a seat at the table with these companies,” Mueffelmann said. “Then, as we see them growing, we increase our shares.”

But the recent scramble among the world’s big media groups for new – and in many cases, unproven – digital companies has driven up valuations, and some analysts warn that Axel Springer’s investment-led strategy represents a potentially high-cost gamble.

“Axel Springer has made a very large number of acquisitions that are just digital bets,” said Claire Enders, founder of Enders Analysis, an independent media and telecoms industry research firm in London. “Digital companies today are selling for huge multiples, but they also have a high failure rate. Many are literally fireflies.”

Doepfner pointed to the decision to bow out of the bidding war for the Financial Times as evidence that the company could hold the line on investment costs.

“We have been very disciplined buyers over the last 10 years and would rather walk away than overpay,” he said.

"Axel Springer would have loved to own the FT because it is a great brand with an already strong digital business," he said. "Growth through acquisitions and organic growth within the English-speaking world is our strategic priority, and content is our top priority."

In Europe, home to around 100 million native German speakers, “we already have an extremely strong market position, but we are reaching the limits of further growth,” even in a digital universe, Mueffelmann said. However, he continued, “there are 400 million native English speakers worldwide, plus another 800 million who speak English as a second language”, which dramatically increases the potential for scale.

Nonetheless, Axel Springer, a family-controlled empire with deep ties to Germany’s political establishment, has shown a willingness to place more opportunistic bets as well. Its first US deal, in 2012, was a modest investment in the home-sharing website Airbnb, just weeks after Doepfner met one of its founders, Brian Chesky, at a conference for technology entrepreneurs in Sun Valley, Idaho.

“I was stunned by the growth potential and the simplicity of the business model,” Doepfner said. In addition to the financial investment, Axel Springer’s main real estate portal, Immonet, formed a marketing partnership with Airbnb in Germany.

The Airbnb investment happened to coincide with the early stages of Axel Springer’s experiment in Silicon Valley, which Doepfner said was deliberately designed to force the members of his management team “out of their comfort zone.”

The company has since established a formal fellowship program for its managers, as well as a permanent business office in Palo Alto.

“I wanted people to be in student mode,” said Doepfner. “Through this very strange formula there has been a lot of bonding,” he added. “It has been quite disruptive in a cultural sense.”

For Kai Diekmann, Bild's publisher, the experience was transformational. Once the quintessential German media executive wearing a bespoke suit in a sprawling corner office, Diekmann (51) returned to Bild's Berlin newsroom from Palo Alto sporting a hoodie, sneakers and a lumberjack beard. He also came back with a clear message to his staff: "I told them we must be ready to make mistakes," Diekmann said, "and to see that failure can be a precondition of success."

Persuading Bild's staff to experiment with what was already one of Germany's most successful media brands was a struggle at first, Diekmann conceded. But the newspaper, whose paid digital subscriber base of around 300,000 is still dwarfed by a print circulation of just over 2.2 million, has made digital investment its top priority, reconceiving its newsroom to cater to an increasingly mobile and social-media-driven readership.

"We have gotten rid of the distinction between print and digital," said Donata Hopfen (39), who heads Bild's management board. "Bild is Bild," she said. "We produce content only once and then every outlet picks out what they need."

A similar digital-first transformation is also underway at Die Welt, Axel Springer's other print flagship, whose staff was recently merged with that of N24, a 24-hour television news channel that Axel Springer bought in early 2014. (The combined operation was recently renamed WeltN24.) "I want our stories to be read, and it is not really important if it's on a printed paper, digitally or on TV," said Jan-Eric Peters, WeltN24's editor-in-chief.

– ( New York Times service)