What does the future hold as Europe embraces digitization?
Alain talks with Mathias Döpfner, the Chief Executive Officer of the German Media Group Axel Springer SE, a leading European publishing house, about the opportunities and challenges of digital transformation, the need to establish an environment of fair competition, and the conflict with Google & Co.
Doctor Döpfner, what is your biggest challenge when facing up to the digitization of your industry?
There are of course quite a few challenges that come along with the digital revolution, and not only for the media sector. Sooner or later all industries will have to realize that production, distribution, marketing, and last but not least customer preferences, are changing dramatically. But we should not complain, because although it can endanger business it is also a huge opportunity. Therefore, at Axel Springer we have a very clear mission: We will strive to become the leading digital publisher.
How does this work?
We have already come quite far in more than ten years, when in 2002 we defined our strategy for digitization. It is very simple and we have not altered it since. We monetize in the digital world in the same way that we have done for decades in the analog world, by relying on three sources of revenues: the paying reader, the advertising customer, and the classified ad customer. Today more than 50 percent of our sales come from digital businesses, almost 70 percent of our operating profits are digital, and about three quarters of our advertising revenues come from digital businesses. Axel Springer is probably the most digitized traditional media company in the world.
As a digital publisher do you not believe in paper any longer?
Printed newspapers will survive longer than some people expect, but it is not a growing business. We have to realize the fact that in the world of younger readers printed newspapers do not exist anymore. This does not mean that they do not read, they simply use other ways of viewing news or entertainment, other technical devices. Is that bad news for us? No! Because our core competence as a publisher is not the printing itself, but the content. We bring the news and fascinating stories to our readers. We believe in journalism. Therefore the real challenge is not to protect printed papers to make them survive as long as possible, but to emancipate the idea of a newspaper from paper.
Where do you expect that growth will come from?
We will focus and grow our media offerings on mobiles and tablets especially. I predict that in ten to fifteen years paper will play the role that vinyl discs have today, with a very small market share. In a few years we will have a form of electronic paper that will be very similar to the paper we are using today made out of wood.
You seem to benefit from the internet. So why are you afraid of Google, as you wrote in April in an open letter to Google’s Executive Chairman Eric Schmidt?
I wanted to open a public debate about tech monopolies and their role in the digital ecosystem. Once you reach a certain market domination like Google, or hold a quasi-monopoly status, transparency and fairness in competition becomes more important; and, in the case of Google, the fairness of search criteria. When I wrote this letter some months ago the issue of fair search was on the agenda in Brussels.
The letter opened up peoples’ mouths and encouraged them to express their critical thoughts in public. I want to stand up for a healthy and competitive business environment. If you own a 90 percent market share, or in some countries even more than that, you are de facto the entry gate to the digital world. If you then decide to discriminate against competitors, or favor your own products over everyone else’s – even when the quality is inferior and without full transparency to the users – this is an unhealthy market situation. By the way this is not only an issue for publishers. A lot of industries are affected, especially e-commerce, and to make it very clear, we are not against Google and other digital players like Facebook or Amazon. I really admire what they have achieved and we have good and important business relations. We benefit from the traffic, we benefit from the advertising revenues that we get through Google, but in some areas we have different interests.
More recently you said that companies that guard customers’ data with greater sensitivity will thrive in the future, rather than companies that abuse their data. Do you have any evidence of that?
There is no clear evidence so far, but I am convinced that sooner or later this will bring a competitive advantage. In the digital world data is the new oil, a kind of currency. It has tremendous value, and fairness regarding the usage of this data will be crucial in the long run. Customers will care more and more what companies do with their data, whether they pass it over directly to the secret service, sell it on to other companies or use it only to the customer’s benefit. Take for instance the recent discussion about Uber and the software called God View that they use to track their users’ behavior. People are getting more sensitive.
Because of thoughts like this people say that you are spearheading a kind of counterrevolution in Europe against US tech giants?
It would be a big misunderstanding to interpret my position as an antagonist to the digital revolution. Quite the contrary, as I said, we are benefitting from digitization, we are embracing it, but we need certain rules that secure fairness in competition. Transparency for our customers as well as the self-determination of the individual has to be secured, and in this sense I think that to be transparent and fair will be a competitive advantage. I don’t think it needs to be considered revolutionary to discuss these thoughts openly.
You are on the Board of two Warner companies in the USA. Do you think that they do things very differently in the USA? Are things better there than in Europe and more advanced?
There is a lot that we Europeans can learn. For example, they are usually seven to eight years ahead of us as regards the fundamental changes in the media business. So I think we should have a close look at what we can learn and what we should adopt. Personally I am fascinated by their dynamic and speed regarding necessary changes, and their relaxed attitude to the possibility of failures.
Let’s come back to the core of your business. Will serious and independent journalism survive in the digital world?
Yes. I very strongly believe in the future of journalism. At Axel Springer we are and always have been, and will continue to be, an enterprise of people whose minds and hearts are dedicated to journalism. Perhaps we are even witnessing the beginning of the new modern age of digital journalism. But it will not be an easy way to go.
What’s in the way?
To successfully establish journalism in the digital world, the legal framework has to be set. Like the intellectual property rights that were enacted by German government and parliament in the summer of 2013. That was a very important step for all German publishers. Our business model needs a legal basis to be protected from content theft, because sustainable business is only possible when a robust legal framework protects creativity and investments that have brought forward a digital product. We advocated this reform of German copyright law which has given an auxiliary copyright to publishers, but while we think that this is a great step forward we are also seeing how difficult it is to make market dominant players like Google pay a fair share of what they make on using our content.
How do other publishers in Europe treat this matter?
Spain has already learned from this experience, and has just passed a much more robust law making compensation of publishers by search engines and aggregators compulsory. Europe’s new digital commissioner Günther Oettinger has hinted at similar plans of his own. I welcome these developments and discussions. Austrian publishers are asking their government to go this route as well. This shows that Europe is finally waking up to the challenges of the digital world. Again, not to discourage them, but to embrace them. No embracing is possible without a proper legal framework. I believe that even more countries should reform their copyright in such a way, or support a European effort to harmonize copyright laws throughout the Union in such a way.
What do you think about the recent EU resolution that could possibly lead to a break-up of Google?
First of all, I think it is a very good sign that the European Parliament realizes what is at stake for Europe. I very much appreciate that the political debate accelerates. How can fair competition be secured in a more and more digital environment? Will there be a chance for an autonomous European digital infrastructure? The right answers have still to be found. I am not calling for a break-up, but I do hope for a voluntary self-restriction to secure fair competition. It is not too late to allow reason to prevail.
But calling on the courts and politicians for answers surely cannot be the key success factors?
Of course not! Calling on the courts is not the only thing that we do, we do much more. But we are a digital company already, and as a digital company we need a fair legal framework for our digital business. Among other things, publishers need to move much more quickly to establish paid content offerings and subscription models to their brands. After all a publisher that gives away its research and editorial production will be totally dependent on advertising revenues, which can in the long run endanger independent reporting. We have already converted our core brands of BILD and WELT to digital subscription models, and we are extremely pleased with the results so far: 56,000 paying digital users for WELT and 250,000 for BILD within a very short period of time.
Why do you invest mostly in Eastern Europe, for instance in Poland?
We invest internationally in accordance with our corporate strategy. Eastern Europe has been one major focus for us. We teamed up with the Swiss publisher Ringier and together we are investing in some of the most interesting Eastern European markets. Poland is especially interesting for us, we were able to boost our digital business there very successfully.
Do you think that the Press still wields great influence when it comes to political decision making?
Journalism should not strive to influence political decision making, although it happens of course. The main function should always be to allow people to understand what makes the world tick, to enable people, our readers, to make up their own minds. That should always be the core idea of journalism and its impact for free and democratic societies.
Is it true you wrote that you are a non-Jewish-Zionist?
Yes, it is true. Zionism is not limited to Jews. The existence of Israel is in the vital interest of western democracies. We share not only the values and cultural roots with Israel, we share the same security and foreign policy agenda. If Israel – the only democratic bridgehead in the region – is weakened, democracy and freedom are weakened.
What do you think about the public sector supporting the media?
It is against my conviction. Media should rely on private competition. Successful business guarantees independence. If you decide to take money from the state, sooner or later you will be a publisher of state media.
Are you afraid that England will leave the European Union?
I am not an insider or an expert on British or European politics, but I am convinced that it would be a great damage to, if not the downfall of, the European idea. Therefore I am optimistic that this will not happen.
You yourself are a journalist and a music critic. Do you think that in today’s world we give too much importance to science and technology vis-à-vis humanities and art?
Science and technology seem to be predominant. Technical revolutions have always been changing the world and society. At the same time, I am convinced that art and humanities are important in order to understand the world. And sometimes they help to change our perceptions, and to change the World.
December 3rd, 2014