Bogus numbers and weird plans in Germany

Germany is the big white spot in Europe when it comes to free dailies and the most contested spot as well. Between 1998 and 2008 paid circulation dropped with 20% from 25 to 20 million. With a substantial and growing number of non- readers, it could be a perfect market for free newspapers.

Both Metro and Schibsted wanted to go to Germany while also Dagsbrun (Iceland) made plans. All plans have been met by heavy resistance. Springer is said to have a ‘war fund’ of €300 million ready and could launch competitor Gratissimo ‘within days’ while WAZ – the second German publisher – also wants to fight a free daily at any cost.

Deutsche Post is more careful with plans for a free daily. FTD reveals that Deutsche Post has approached all major German publishers with their plans. FTD cites ‘informed sources’ who state that it would take at least six years for a German project to break even, and that such an operation would costs €400m at least.

How €400 million is calculated and who the sources are is mysterious. It looks like a attempt to raise the entry barrier. Launching costs were between €10 and €20 million in Spain, France, UK and the Netherlands – Germany with a launch in 8 to 12 markets might be costly but €400 million seems excessive. Why a free daily ‘must’ be launched in several markets at the same time is also not clear. Six years before break-even seems reasonable, but even then €400 million would be over the top.

Focusing on Deutsche Post is barking up the wrong tree. DP only could play a role in a home-delivered free daily – one of the most expensive and difficult business models. Examples from Denmark, Czech Republic, Switzerland, the USA and the Netherlands actually demonstrate that such a delivery is not very successful and is only tried in a crowded market as a last resort.

This doesn’t mean launching a free daily in Germany is without problems. But it does mean problems could lie elsewhere. The most important is the behavior of incumbent publishers. In the past they have sold ads below cost price, joined forces in fighting and preventing a free daily and made deals with subway operators to ban free dailies in return for free advertising.

Most of these actions actually prevent competition and could be brought forward to the Bundeskartellambt, the German anti-competition agency. So far legal actions have been directed towards free dailies, but it could be the other way around as well.

German publishers seem determined to go all the way against free dailies, overlooking the chances and being responsible for the fact that in Germany young people hardly read newspapers.

9 Responses to “Bogus numbers and weird plans in Germany”

  1. tkerper Says:

    “Why a free daily ‘must’ be launched in several markets at the same time is also not clear”. *** May be to give the advertiser a national reach? ***

  2. Piet Bakker Says:

    True, but is also raises the barrier for any party to launch. In particular if local editions need to have their own content as well. The ‘national’ model is not the only one as can be seen in almost any European country.

  3. tkerper Says:

    You´ll know the most of local free dailies are distibuted after a launch of a national paper to protect the own market. (Exception Spain, Austria)
    In Germany the local publisher are very strong in business with paid dailies and free weekly papers with home delivery. In agglomerations the title BILD of germans biggest player is distributed in single sale in high frequented areas. To overcome the local barriers you should have many good friends.

  4. Piet Bakker Says:

    and when you launch a free daily in Germany you will find yourself without any friends?

  5. tkerper Says:

    I think nobody want´s to share the own market with new competitors.

  6. Andreas Says:

    Just to get it right: Launching costs means cost till break even?

  7. Piet Bakker Says:

    Launching costs are only made once, and mostly before the launch. Break-even means for most companies that the costs for running the operation during a month, quarter or year are at least equal to the revenues in the period.

  8. Andreas Says:

    So the €400 m only refer to launching costs? Maybe it’s the money needed to get profitable what would make the number more realistic …

  9. Piet Bakker Says:

    It’s €400m according to FTD. But as I read it, it would involve launching costs and the losses of the first six years as they don’t expect to break even before that.